While he spoke in parliament, the German armed forces launched a three-day exercise dubbed "Red Storm Bravo" in the northern port city of Hamburg meant to simulate NATO troop movements in case of conflict in a Baltic country.

Germany, a strong backer of Ukraine against Russia, has seen a rise in unidentified drone flights over military bases and critical infrastructure in recent months.

Dobrindt, citing hybrid threats and "aggression" from Russia, said Germany was strengthening its "operational capabilities by developing drone defence systems".

"We are engaged in an arms race between the threat posed by drones and the means to counter them," he said, citing recent incidents in Poland, Romania, Denmark and Norway.

Dobrindt said Germany would boost investment and change its aviation safety rules to allow it to better "detect, defend and intercept" unmanned aerial vehicles.

Berlin accuses Russia of carrying out sabotage, espionage, surveillance and destabilisation operations.

But German authorities have so far been reluctant to shoot down drones for fear that debris could cause casualties.

Drone warfare has been a core feature of the Ukraine conflict and NATO countries bordering Russia hope to build a "drone defence wall" -- a network of technological and military solutions to counter these aerial threats.

German Chancellor Friedrich Merz, who took office in May, has announced ambitious plans to build up the armed forces, citing the threat posed by Russia.

The military exercise in Hamburg is set to involve around 500 soldiers as well as police, firefighters and other emergency services, and see a convoy of armoured vehicles cross through the city.

"In the fictional exercise scenario of Red Storm Bravo, we assume an escalating conflict in the Baltic region," said a spokeswoman for the German army, or Bundeswehr. "To achieve effective deterrence, troops and personnel will be deployed through Hamburg."

Away from public view, a drill will simulate a "mass casualty incident" in a harbourside area, local media reported.

Protests under the rallying cry "No War Games in Hamburg", organised by left-wing groups, are expected outside Hamburg's city hall on Friday and near the central railway station on Saturday.