German neo-Nazis tore up and burned a copy of The Diary of Anne Frank after hijacking a traditional gala.
Around 100 skinheads cheered and shouted Sieg Heil as the most poignant memoir of the Holocaust years went up in flames.
They also burned a U.S. flag and sang banned Nazi songs.
Germans were horrified by the latest outrage from the far Right, which comes as the country rides a new wave of peaceful patriotism as it hosts the World Cup.
Uwe Hornburg, a prosecutor investigating the incident, said: 'I am appalled. In 20 years as a prosecutor I have never had a case quite so disturbing.'
The book-burning, which has chilling parallels to the 1930s when Nazi supporters made pyres of books written by Jews, follows a string of high-profile attacks by racist gangs on blacks.
The neo-Nazis descended on a field in the village of Pretzien, Saxony, where local people were re-enacting a pagan rite celebrating midsummer.
A bonfire was lit and the book and flag destroyed.
Before they burned the book, the extremists used it as a football in a drunken kick-around.
Anne Frank's diary was written by a Jewish schoolgirl who hid with her parents in a flat in German-occupied Amsterdam for three years before they were betrayed to the Gestapo.
She died with most of her family in death camps. Only her father survived to find the diary and have it published.
It is now a mandatory part of the curriculum at all German schools.
Saxon interior minister Holger Hoevelmann said: 'This is an attack on civilised culture, on humanity and on decency.'
At the Anne Frank Centre in Berlin, an official spoke yesterday of a 'an outrageous incident' and demanded the highest possible penalties for the perpetrators.
Pretzien is in the impoverished former communist east of Germany, close to Magdeburg and some 100 miles from Berlin.
Its mayor Friedrich Harwig, who saw the book-burning, said: 'This happened because our defences against it are not strong enough.
'I have struggled for years against neo-Nazis and they keep on growing.'
Many areas of the east suffer extreme unemployment, disillusionment and despair, helping extremists attract the young and impressionable.
Before the World Cup began, black fans planning to visit Germany were warned that there were no-go areas, particularly in the east, where their lives could be in danger.
In the worst of the racist attacks, on Easter Sunday, a German of Ethiopian descent was beaten into a coma in Potsdam and nearly died.
The warning to visitors came from Uwe-Karsten Heye, a former government spokesman who is chairman of the human rights group Action for a World-Welcoming Germany.