The authorities have now sealed off an area measuring three square kilometres around the affected farm near the town of Neuss.
Checks at a farm near Dusseldorf found foot-and-mouth antibodies in the blood of five sheep.
The animals were among 1,500 sheep imported from UK which the German authorities are slaughtering as a precaution against the spread of foot-and-mouth disease.
"This is our alarm signal," said Baerbel Hoehn, the environment minister in the state of North Rhine-Westphalia where the farm in question is located.
"This is our first suspicion that German animals perhaps had contact with infected animals. We cannot rule out the outbreak of the disease on the continent."
The authorities have now sealed off an area measuring three square kilometres around the affected farm near the town of Neuss.
France had earlier announced plans to destroy 20,000 sheep imported from the UK in an attempt to reduce the risk of foot-and-mouth spreading across the Channel.
And in Belgium, the agriculture minister has ordered the destruction of about 1,000 sheep imported from Britain since 1 February.
The decisions came after EU vets decided to extend a ban on British livestock exports until 9 March. The UK Government says a ban of its own will remain in force until it is sure the outbreak of the disease has ended.
Mutton demand
Half of the sheep have already been slaughtered for commercial purposes, but the meat will be taken out of circulation, Mr Glavany said.
Demand for mutton is currently high in France because the country's large Muslim community is preparing to celebrate the religious holiday of Eid Al-Adha on 5 March.
French experts say it is quite possible for the disease to cross the channel, either borne by the wind, or by seagulls.
Airborne transmission
Germany, where experts also say there is a high risk of the disease appearing, has imported 3,530 sheep from the UK since 20 February.
Authorities in the Neuss district of North Rhine-Westphalia said 1,500 sheep would be slaughtered in addition to 350 which were killed on Monday because they had come from an affected farm in the UK.
German officials said they had been monitoring arrivals at airports to check they were not bringing milk or meat into the country, "down to the last slice of salami".
Both in the Irish Republic and Northern Ireland, farmers have been asked to adopt a "fortress farm" mentality.
An Irish Agriculture Department spokesman said the closure of cattle markets along the border with Northern Ireland had been extended.
The number of animals slaughtered or due for slaughter in the UK is now about 7,000.
There are as yet no recorded cases of foot-and-mouth in mainland Europe.