A leader of the far-right National Democratic Party (NPD) was charged with inciting racial hatred yesterday after he proposed Adolf Hitler's former deputy, Rudolf Hess, for the Nobel Peace Prize. Hours after Udo Voigt made the remarks in a speech marking the 20th anniversary of Hess's death last Saturday night, the Indian men were chased through the nearby town of Mugeln.

Kurt Beck, the leader of Merkel's Social Democrat coalition partners, said that in light of the attacks he was preparing a new legal initiative aimed at outlawing the NPD. But Merkel said she remained sceptical about such a move.

"I found the previous experience we had with this highly disagreeable, " she said. "I definitely don't want a repeat of last time." An effort to ban the NPD failed in 2003 when judges at the country's highest court rejected the government's case after it emerged some of the testimony was from government informants within the party.

The calls for a ban on Germany's largest neo-Nazi party . . . which has won parliamentary seats in two eastern states in recent regional elections . . . were the latest response to last weekend's disturbing outbreak of xenophobic violence.

Local people in the small town in the east German state of Saxony were enjoying the final hours of an annual street party on Saturday night when a drunken mob of 50 youths rampaged through a market and harassed eight Indian stall holders who were selling textiles.

Shouting "Get out of Germany" and chanting the far-right slogan "Long live the national resistance", the gang chased the terrified Indians, who took refuge in a pizzeria and tried to barricade themselves in with the restaurant's tables.

However, the mob smashed their way into the building, kicking and punching the Indians and attacking them with bottles. More than 70 heavily armed riot police rescued them. Gurminder Singh, one of the injured men, appeared on German television with a six-inchlong head wound.

Amal, one of the main anti-Nazi groups in the region, said there had been 137 neo-Nazi attacks in Saxony during the first half of 2007, but believes the unofficial figure is much higher.

A recent survey conducted by the Forsa research group showed every second east German youth between the ages of 14 and 25 believed that National Socialism had "good sides".

The NPD won seats in Saxony in the state's last elections and also captured seats in Merkel's home state of Mecklenburg-Pomerania last year, when violent crimes by far-right extremists reached their highest level since the country's reunification in 1990. Rising far-right violence prompted Merkel's predecessor, Gerhard Schroder, to launch an attempt to ban the NPD in 2003, but the result was a legal fiasco. A ban was rejected by Germany's Karlsruhe constitutional court after it established most of the evidence against the far-right party was inadmissible as it had been collected by government intelligence agents who had infiltrated the organisation.