Germany’s domestic intelligence chief, Hans-Georg Maassen has been told to quit and move to a senior post at the interior ministry.
The government’s decision came amid a furore over Mr Maassen’s response to recent far-right unrest in Chemnitz.
Anti-migrant “hunts” were reported there on 26 August after a German man was killed in a brawl with migrants.
Mr Maassen doubted that foreign-looking people had been hounded. Chancellor Angela Merkel was urged to sack him.
Mr Maassen will leave the Bundesamt fuer Verfassungsschutz (BfV) spy service and become ‘a state secretary in the interior ministry.’
His move was a compromise between Mrs Merkel and her coalition partners, Interior Minister Horst Seehofer, of the right-wing Bavarian CSU, and centre-left Social Democrat (SPD) leader Andrea Nahles.
Mr Seehofer defended Mr Maassen’s actions over Chemnitz, but Ms Nahles wanted him to quit.
Several xenophobic assaults were reported in the eastern German city after the fatal stabbing of Daniel H. They were described as racist “hunts”, and images emerged showing demonstrators chasing people and flinging bottles and fireworks.
Spy chief Mr Maassen said; “his Federal Office for Constitutional Protection (BfV) – which is similar to the British MI5 had no reliable information about such hunts taking place”.
He also questioned whether a video posted by “Antifa Zeckenbiss” – meaning “anti-fascist tick bite” – really showed, as claimed, a “hunt in Chemnitz” on 26 August.