Prosecutors said the group was inspired by the deep state conspiracy theories of Germany's Reichsbuerger movement as well as QAnon ideology.
Members of the Reichsbuerger (Citizens of the Reich) do not recognise modern-day Germany as a legitimate state, while QAnon is a global conspiracy theory with roots in the United States.
Some of them are devoted to the German empire under monarchy while others believe Germany is still under military occupation.
The plot envisaged a former member of a German royal family, identified as Heinrich XIII P R under Germany's privacy law, as leader in a future state while another suspect, Ruediger v P, was the head of the military arm, prosecutors said.
The group had emulated the structure of the government, creating a "council" that had regularly met since November 2021 as an administration-in-waiting with different departments, such as foreign affairs and health, prosecutors said.
They said Heinrich, who uses the title prince and comes from the royal House of Reuss, which had ruled over parts of eastern Germany, had contacted representatives of Russia, whom the group saw as its central contact for establishing its new order.
It said there was no evidence the representatives had reacted positively to the request.
The Kremlin said there could be no question of any Russian involvement in an alleged plot to overthrow the German state, with spokesman Dmitry Peskov saying that it "appears to be a German internal problem".
The German government would respond with the full force of the law, Interior Minister Nancy Faeser said.
"The investigations provide a glimpse into the abyss of a terrorist threat from the Reichsbuerger milieu," Faeser said in a statement, adding that the constitutional state knew how to defend itself against "the enemies of democracy".
Faeser said she would present a bill in the next few days that would make it easier to remove civil service employees who were deemed to be enemies of the constitution.
The head of Germany's domestic intelligence agency said the Reichsbuerger movement had grown considerably in the last year and presented a persistently high level of danger.
The group had been procuring equipment, trying to recruit new members and holding shooting lessons, prosecutors said.
The focus of the recruitment efforts were primarily members of the military and police officers, they said.
Investigators suspect individual members of the group had concrete plans to storm the Bundestag lower house of parliament in Berlin with a small armed group, the prosecutor's office said.
The vice-president of the Bundestag, Wolfgang Kubicki, told the Rheinische Post newspaper that the parliamentary building was equipped for attacks from the outside and aware of potential threat situations, so "the group's plans were already doomed to fail when they were forged".
Germany's domestic intelligence agency attributes 21,000 people to the Reichsbuerger movement, with about five per cent of them seen as far-right extremists.
The House of Reuss had previously distanced itself from Heinrich, calling him a confused man who pursued conspiracy theories, according to local media.
Germany's monarchy was abolished a century ago.
When the Weimar constitution entered into force on August 14, 1919, the legal privileges and titles of German nobility were abolished.
Officially, there are no princes and princesses in Germany.
Prosecutors said the raids were conducted by more than 3000 police officials and security forces across 11 German federal states.
Suspects were also arrested in Austria and Italy, the office said.
Eight are already in pre-trial detention, with the suspects due to appear before a judge on Wednesday and Thursday to determine the next judicial steps.
Italian police said they had arrested a 64-year-old former German army officer in the city of Perugia in connection with the case and extradition procedures had begun.
