The Constitutional Court in Karlsruhe granted an application for the neo-Nazi demonstration on Saturday morning after the court in Gelsenkirchen refused permission on Friday and the organisers appealed.
Police had banned a proposed march after they arrested a 19-year-old man in the Aachen area, fearing he had been building an explosive device. The far right extremist, who is said to have connections to Dortmund, was found to have ammunition in his flat.
After the Constitutional Court allowed the march to take place, the police restricted it to a car park.
Around 1,000 neo-Nazis turned up to the rally, which drew around 15 times as many people in largely peaceful opposition.
Police had their hands full with around 500 of the far-right group who, on arriving in Dortmund, raced off the train and started marching towards the city centre rather than to the car park where the rally was being held.
Fighting broke out as the police stopped them and redirected them to the car park, where around 460 others were waiting.
Further violence broke out as the police broke up a sit-down blockade of around 1,000 anti-fascist demonstrators.
One police officer was seriously hurt during the day and at least 160 people – mostly counterdemonstrators – were either arrested or taken into preventative custody.