The German cabinet has approved a plan to fine social networks like Facebook up to €50 million if they don't promptly remove hateful posts.
"There should be just as little tolerance for criminal rabble-rousing on social networks as on the street," Justice Minister Heiko Maas said in a statement, adding that he would seek to push for similar rules at a European level.
Germany already has some of the world's toughest hate speech laws covering defamation, public incitement to commit crimes and threats of violence, backed up by prison sentences for Holocaust denial or inciting hatred against minorities.
The issue has taken on more urgency because of concern about the spread of fake news and racist content on social media, with many in Germany's political establishment worried it could influence public opinion in this year's election campaign.
The draft law would give social networks 24 hours to delete or block obviously criminal content and seven days to deal with less clear-cut cases, with an obligation to report back to the person who filed the complaint.
Failure to comply with the law expected to be passed before elections in September could see a company fined up to up to €50 million and the company's chief representative in Germany fined up to €5 million.