The Ifo economic institute's closely-watched business climate index rose to 107.5 points this month from 106.2 in July, in a move likely to provide a further boost to Chancellor Angela Merkel a month before general elections.
Analysts polled by Dow Jones Newswires had predicted an increase, albeit slightly lower, to 107 points.
"Companies are more satisfied with their current business situation. Their optimism regarding future business developments -- although slightly cautious – also grew," the think tank's economist Kai Carstensen said in a statement. "The German economy moved up a gear."
Ifo calculates its headline index on the basis of companies' assessments of their current business and the outlook for the next six months.
With the battered eurozone now climbing out of recession, Germany’s manufacturing confidence rose significantly, reaching its highest level since April 2012, the Ifo indicator showed.
"Assessments of the current business situation were considerably better than last month. Business expectations also continued to brighten," Carstensen said. "Firms expect stronger impulses from export business.”