AfD candidate Kay Nerstheimer was elected on Sunday to Berlin's state parliament, but quickly came under pressure over controversial posts he made on Facebook as well as his background as a former member of the far-right German Defence League.
After labelling Syrian refugees "disgusting worms" last year, he this year said asylum seekers were "parasites which are feeding off the German people", national media reported.
Nerstheimer has also made comments on social media justifying the killing of civilians by German troops in the Second World War by claiming they were guerrilla fighters and was previously a member of the German Defence League, an organization which is being monitored by the security services.
Public outrage over the offensive statements forced the Berlin chapter of the AfD to distance itself Thursday from Nerstheimer, who had garnered one in four votes in the capital's suburban electoral district of Lichtenberg 1.
The party decided to drop Nerstheimer from its parliamentary group, but he would still be able to keep his seat in Berlin's parliament as an independent deputy, said Ronald Glaeser, spokesman for AfD's Berlin chapter.
The AfD, however, has not launched any proceedings to kick Nerstheimer out of the party altogether, he added.
Meanwhile in western Germany, the party is battling another controversy after Stern weekly and broadcaster ARD published reports accusing AfD member Rudolf Müller of selling Nazi paraphernalia.
Müller, who is the AfD's lead candidate for next year's state elections in the western state of Saarland, was selling money from Nazi concentration camps and swastika medals at his antiquities shop, the reports said.
An undercover buyer for Stern was able to buy both items at the shop while another posing for ARD did so a few days later.
Under German law, it is illegal to trade in Nazi paraphernalia.
Reacting to the accusations, Müller told ARD that he did not know that trade in swastika medals was against the law, although he acknowledged that it was "not befitting" for a leading candidate of the AfD to be making such sales.
He however defended the sale of banknotes from concentration camps, saying it only "generated small amounts that adds to sales of other regular items."
The AfD was formed more than three years ago by economics professor Bernd Lucke as an anti-euro party.
But Lucke was forced out of the party last year, heralding its transformation into an anti-migrant and Islamophobic party, capitalizing on public anger over the million refugees who arrived in Germany last year.
It rejects being labelled as an extremist or neo-Nazi party, but its members have been caught out for offensive speech on several occasions.
Different factions within the party are also jostling for power, with the more moderate branch led by co-chief Jörg Meuthen, while joint leader Frauke Petry is the face of the more right-leaning group.
The rivalry between Meuthen and Petry burst into the open in July when one of the party's regional lawmakers, Wolfgang Gedeon, sparked a storm with anti-Semitic remarks, including calling Holocaust deniers "dissidents".
Meuthen then threatened to step down from the AfD state assembly if Gedeon failed to quit, while Petry did not openly condemn Gedeon's comments.
The controversies have not halted a surge in support for the party.
It is now represented on the opposition benches of ten of Germany's 16 state assemblies, and is eyeing seats in national parliament when the country holds general elections next year.
Latest surveys credit it with backing of around 14 percent nationwide.