"We condemn the fact that the Remembrance, Responsibility and Future Foundation (EVZ) has been declared 'undesirable'," said German foreign ministry spokesman Josef Hinterseher.
The office of Russia's prosecutor general justified the decision by accusing the EVZ of taking "a politically biased anti-Russian stance" in its work.
The "undesirable" status forces organisations to shut down in Russia and means Russians that work for, fund or collaborate with them can also be liable to prosecution.
The prosecutor general's office also said that "since 2024 funding in Russia has been discontinued for a programme whose target audience was the relatives of victims of Hitler's accomplices".
In March the EVZ said that "Russia's illegal war of aggression against Ukraine... means that it has been increasingly difficult to continue work in Russia and Belarus".
"The work of those supported by the foundation has increasingly been subject to repression," it said.
"For this reason the EVZ foundation has been forced to cease its programmes in both countries and find other ways to support the survivors of Nazi persecution."
The EVZ was founded in 2000 and receives half of its funding from the German government.
It says it has paid compensation to at least 100,000 victims of Nazi crimes and their descendants in Russia since its inception.
Several German organisations have faced a similar fate to the EVZ in Russia in recent years.
Last year the Konrad Adenauer and Friedrich Ebert foundations, close to Germany's two main centrist parties, were also declared "undesirable".
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