The Federal Office for the Protection of the Constitution (BfV) said it had made the move after four years of investigations into the group.
The Alternative for Germany (AfD) youth wing is clearly xenophobic and likely to adopt "non-peaceful behaviour" towards people perceived as foreign, the BfV said in a statement.
Two other "new right" organisations, the EinPercent association and the Institute for State Policy (IfS) think-tank, were also classified as "confirmed" extremist.
"There is no longer any doubt that these three groups of people are pursuing anti-constitutional endeavours," said Thomas Haldenwang, Germany's domestic security chief.
"These actors of the so-called 'new right' spread nothing but hatred and exclusion," said Interior Minister Nancy Faeser.
"They try to combine this with a supposedly educated, more modern face. But the inhuman ideologies behind it are clear."
The AfD's youth wing had already been classed as a "suspected case" of right-wing extremism, allowing intelligence agents to tap its communications and possibly use undercover informants.
The new label as a "confirmed" case allows the authorities even more leeway to closely monitor the organisation.
In 2021, the the entire AfD was classified as a "suspected case".
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However, the move was suspended by an administrative court in Cologne based on a legal technicality.
The AfD has had a presence in the German parliament since 2017 and is currently the third most popular party in Germany, according to some opinion polls.
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