The move prompted some senior German politicians to warn that basic freedoms were now at risk, Reuters reported on Tuesday.
"If an elected mayor does not feel protected from a brown mob in our democracy, all alarm bells must be ringing," Greens co-leader Cem Oezdemir told the Berliner Zeitung daily, in a clear reference to the brown uniforms worn by Adolf Hitler's followers.
The incident highlighted concerns that the far-right could capitalize on public discontent about the rising tide of asylum seekers whose numbers increased by 60 percent last year.
Opinion polls indicate that too many Germans think Chancellor Angela Merkel's government has paid too little attention to worries about immigration.
The NPD had already held several marches to protest against Nierth's plans for Troeglitz, in Saxony Anhalt, to take in about 40 asylum seekers, similar to plans in many other towns.