"We are very worried by how the situation in Egypt is developing," Westerwelle told reporters.
"We call on all the parties to exercise restraint and renounce violence. The situation in Egypt should not be allowed to escalate further and for this reason restraint from violence ... is the order of the day."
Westerwelle said countries where human rights and freedoms were denied risked instability and conflict.
"The current situation in Egypt highlights the need for a dialogue in society, it highlights the need for more democracy, respect for people and for human rights. That is the best way to achieve stability," he added.
Four people died on Tuesday during unprecedented nationwide rallies seeking to end President Hosni Mubarak's three-decade-long rule.
Activists have called for more protests on Wednesday but the interior ministry said further demonstrations were banned and anyone taking part would be prosecuted.
"The right of people to protest peacefully must be protected - that applies to all countries," German Chancellor Angela Merkel's spokesman Steffen Seibert told a regular government press briefing.
The spokeswoman for EU foreign policy chief Catherine Ashton said Wednesday that protests in Egypt highlight the "wish for political change" and are "a signal" after recent events in Tunisia led to the ouster of autocratic President Zine el Abidine Ben Ali earlier this month.