Leaders of German chancellor Angela Merkel’s governing coalition have reached a deal to resolve a standoff over the future of the country’s intelligence chief.

The dispute has further dented the image of their fractious six-month-old alliance.

The centre-left Social Democrats have insisted that Hans-Georg Maassen be removed as head of the BfV spy agency for appearing to downplay recent violence against migrants, but conservative Interior Minister Horst Seehofer has stood by him.

Germany Politics
German Chancellor Angela Merkel, Horst Seehofer, Chairman of the German Christian Social Union and Andrea Nahles, chairwoman of the German Social Democrats (Michael Sohn/AP)

Last week, coalition leaders agreed to replace Mr Maassen as head of the BfV but give him a new job as a deputy interior minister, a promotion with a hefty pay increase.

The move prompted a backlash from furious Social Democrats, prompting party leader Andrea Nahles to call for the deal’s renegotiation.

On Sunday, coalition leaders agreed instead to make Mr Maassen a “special adviser” at the interior ministry with responsibility for “European and international issues”, Mr Seehofer said.

He will remain at his current pay level.

In addition, a deputy interior minister and expert on construction issues, Social Democrat Gunther Adler, will now keep his job rather than making way for Mr Maassen.

Ms Nahles will have to sell the new compromise to her party’s leadership on Monday.

“I think it is a very good signal that we took the criticism of our decision on Tuesday evening seriously and were able to correct it,” Ms Nahles told reporters.

She declared that “overall, the foundation has been laid for us to return to substantive work”.

Germany Government
German Interior Minister Horst Seehofer (Markus Schreiber/AP)

The dispute has clouded the government’s future at a time when the three parties face major challenges in upcoming state elections, in Mr Seehofer’s home state of Bavaria on October 14 and in neighbouring Hesse on October 28.

The infighting appears to be weighing down their support, which has not recovered since a national election a year ago in which all three coalition parties lost ground and the far-right Alternative for Germany entered parliament.

The coalition of Ms Merkel’s Christian Democratic Union, Mr Seehofer’s Bavaria-only Christian Social Union and the Social Democrats took office in March after Ms Nahles’ party decided reluctantly to join up.

It has already been through one crisis that threatened its survival, when Ms Merkel and Mr Seehofer, a conservative ally, but a longtime critic of her initially welcoming approach to refugees in 2015, faced off in June over whether to turn back some migrants at the German-Austrian border.

Responding to violent right-wing protests following the killing of a German man, allegedly by migrants, in the eastern city of Chemnitz, Mr Maassen said his agency had no reliable evidence that foreigners were being “hunted” down in the streets, a term Ms Merkel had used.

Hans-Georg Maassen
Hans-Georg Maassen has been supported by Germany’s interior minister Horst Seehofer (Bernd von Jutrczenka/dpa via AP)

A video posted by a left-wing group showed protesters chasing down and attacking a foreigner but Mr Maassen questioned its authenticity.

Mr Seehofer, Mr Maassen’s boss, has insisted that Mr Maassen is a “highly competent” employee who has not violated any rules and said he will not outright dismiss him.

He accused the Social Democrats of running a “campaign” against Mr Maassen.

Mr Seehofer, who leads the CSU, became interior minister after giving up his previous job as Bavarian governor following last year’s national election.

There is widespread speculation that a poor election performance in Bavaria next month could threaten his political future.