The party won 32.8% of the vote in Thuringia, followed by the centre-right Christian Democratic Union (CDU) with 23.6%.
A far-right party has won a regional election in Germany for the first time since the Second World War.
Alternative for Germany (AfD), founded in 2013 with an anti-migration and eurosceptic agenda, picked up the most votes in the eastern state of Thuringia.
The party won 32.8% of the vote, followed by mainstream conservatives the centre-right Christian Democratic Union (CDU) with 23.6%.
It is the first time a far-right party has won the most seats in a German state parliament since the Second World War.
But AfD is almost certain to be excluded from power by rival parties.
AfD also performed well in the neighbouring state of Saxony, where it was a close second behind the CDU by just half a percentage point, a ZDF exit poll said.
The CDU, which has governed Saxony since German reunification more than 30 years ago and is the main opposition party at national level, appeared set to secure 32% of the vote in the state.
But the AfD was narrowly behind with 31.5% on Sunday, according to the poll.
Speaking after the results, AfD’s leader in Thuringia Bjorn Hocke said he felt “a great, great deal of pride”.
However, when it was pointed out that Germany’s domestic intelligence agency has his local party branch under official surveillance as a “proven right-wing extremist” group, he bristled at the question and said: “Please stop stigmatising me. We are the number one party in Thuringia.
“You don’t want to classify one-third of the voters in Thuringia as right-wing extremists.”
Hocke himself has been convicted of knowingly using a Nazi slogan at political events – he is appealing.