The group, Suaram, launched a complaint in a French court earlier this year accusing Prime Minister Najib Razak and others over a 2002 deal to buy two submarines from France.
"The action of the German embassy can be misconstrued and be seen as interference in the domestic affairs of a sovereign state," the Foreign Ministry said in a statement late Thursday.
"Malaysia is deeply disappointed to learn that the embassy is engaged in such activities that show its partiality to certain issues that have implications on Malaysia's domestic situation."
The embassy declined to make an immediate comment Friday. But German Ambassador Guenter Gruber was quoted by the national news agency Bernama earlier this week as saying that the funding was for a one-off project in 2010.
Suaram, whose accounts are being investigated by authorities, has accused the government of harassment after it alleged corruption during the purchase of the two Scorpene submarines while Najib was defence minister.
"This ongoing political intimidation and harassment against Suaram is proof that the government is determined to silent critical voices," Suaram said in a statement on Wednesday.
Najib, who must face elections by the middle of next year, has been touting a reform agenda, including scrapping a strict security law that allowed for indefinite detention without trial.
But critics have dismissed his reforms as an insincere ploy to win back support after the 2008 elections, when the Barisan Nasional coalition lost its customary two-thirds parliamentary majority in its worst showing ever.