With 44 per cent of the vote, the AfD handed a drubbing to Chancellor Friedrich Merz's conservatives on Sunday, reflecting the deep unpopularity of Germany's ruling coalition and the rise of hardline parties in a fracturing political landscape.
If the AfD can translate its win into a majority of seats in the state parliament, it will secure a foothold for advancing its agenda to heavily restrict immigration, restore ties with Russia, cut support to Ukraine and quit the euro.
It remained unclear if the AfD had secured enough votes to form a government but the wider political significance of the election was clear.
"We have made history in this country," said Ulrich Siegmund, the 35-year-old AfD lead candidate in Saxony-Anhalt, who attracted thousands to his campaign rallies and who repeatedly cast victory in the state as a first step towards securing national power in federal elections due in 2029.
"The people have made it absolutely clear that they finally want political change and, above all, they have shown that they want it with us," Siegmund said.
As the first exit polls were published, he stood arm-in-arm with his party's two national leaders, who laughed gleefully as the extent of the victory became clear.
Jubilant celebrations broke out at the party's election night gathering in the city of Magdeburg, where people waved German flags and hugged each other in triumph.
US President Donald Trump posted a screenshot of the result without comment on his Truth Social site, while far-right leaders in other European countries cheered the election as a mandate for change.
The result marks a significant setback for Merz, whose personal approval rating has sunk to historic lows as voters turn away from both his planned reforms to revive Germany's sluggish economy.
A poll from the ARD broadcaster showed 87 per cent of the state's voters were unhappy with the federal government.
Merz has vowed to revive Europe's largest economy with business-friendly reforms and increased spending, while warning that an AfD win in Saxony-Anhalt would damage the state and deter foreign companies from investing there.
Germany's mainstream parties have all refused to work with the AfD, which has been classified as right-wing extremist by the local office of Germany's domestic intelligence service. But it may find a partner in the small BSW party, which looked set to clear the threshold to enter parliament.
Although Saxony-Anhalt is one of the smaller German states, with a population of just over two million, the result underlines the rapid advance of the AfD since it was created in 2013.
The AfD is now Germany's most popular party nationally, polling at 28 per cent according to a recent INSA poll, comfortably ahead of the conservatives on 20 per cent.
While hard-right parties have gained ground elsewhere in Europe, Germany's Nazi past has contributed to a reluctance among mainstream parties to co-operate with the AfD.
During the campaign, the AfD tapped into growing disillusionment with established parties, which it characterises as tired and out of touch, offering instead a range of hardline policies and a nostalgic vision of a return to cleaner and safer streets and taking pride in being German.
The AfD's program includes plans to push schools and cultural institutions towards what it views as more traditional values, while curbing immigration and overhauling public broadcasting. It wants the children of refugees to be taught in segregated classes.
It has called for rainbow flags in schools to be banned and for the German national flag to be hoisted every day.
with Reuters and AP
