Two people arrested and a pipe bomb, assault rifle and chemicals seized during raid near Frankfurt.
Officials said on Thursday that the device, found at the suspects' home in Oberursel near the city of Frankfurt, was "ready for use."
"According to our current information we have prevented an attack," Stefan Mueller, the chief of police for western Hesse state said.
Prosecutors said the raid came after security officials learned that three litres of hydrogen peroxide had been purchased at a hardware store by someone using a false name.
"This hydrogen peroxide triggered an alert," Stefan Rojczyk, Frankfurt's deputy chief prosecutor told the AP news agency. "Police figured out who had bought it and it was decided to act fast."
Germany's Die Welt daily newspaper said the couple had been under observation by a special police unit for several days.
Hydrogen peroxide has been used by to build improvised explosive devices in the past, including by the "shoe bomber" Richard Reid, who tried to detonate a bomb in his shoe during a trans-Atlantic flight.
"Three litres is completely unusual," Rojczyk said. "You can use it to clear algae from your pond, but you can also use it to build bombs."
In addition to the hydrogen peroxide, pipe bomb and rifle, 100 rounds of ammunition were also recovered.
"We are of course still trying to determine what was going on. We have the devices, we have the owners of these devices, but now we need to find out what was planned," Rojczyk said.
"Everything is being evaluated and this may take some time."
Authorities in Germany say the country is at high risk of an attack, including by members of the Islamic State of Iraq and the Levant.
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