Officers searched premises linked to the suspects across 12 German states “in a coordinated, nationwide action”, the Frankfurt prosecution service's internet crime office ZIT said in a statement.
The 40 suspects stand accused of “making criminally relevant statements, primarily on social media” against Walter Lübcke, a local politician in the western state of Hesse who was shot dead on his terrace in June 2019.
READ ALSO: Political link suspected in German pro-migrant politician's murder
Prosecutors have charged known neo-Nazi Stephan Ernst with the murder, apparently spurred by anger over Lübcke's willingness to host refugees in the area. The accused is set to go on trial on June 16th.
The murder shocked Germany and fuelled alarm over the country's increasingly violent far-right scene.
The German government has sought to counter the growing threat in part by cracking down on online hate speech.
Chancellor Angela Merkel's government approved a draft law in February setting out tougher punishments for those caught spreading hatred or making threats on the internet.
Social media networks like Twitter and Facebook will also be required to pass on certain types of illegal posts to the police, such as neo-Nazi propaganda or rape or death threats.
Critics have said the law could stifle free speech online but Interior Minister Horst Seehofer has said it would help ensure hate crimes “end up where they belong: before a court”.
READ ALSO: Germany to crack down on online hate speech