Germany pledged it would further reform its domestic intelligence security services on Tuesday amid cries over its fumbled investigation that failed to track recent serial killings by neo-Nazis.

Domestic intelligence director Heinz Fromm, 63, announced he would go in for early retirement. Fromm had previously served as the chief of the Federal Office for the Protection of the Constitution. He is likely to be replaced by his deputy Alexander Kingfisher.

Fromm has come under intense criticism over blunders in an investigation into 10 murders by a neo-Nazi gang exposed last November. Two of the culprits were found dead in an apparent suicide and the other confessed to police.

Since then, the public questioned why the country's services failed to keep check on the small neo-Nazi gang for as long as 11 years. The German government admitted there were gross errors by the security office.

Pressure further mounted last week after it was reported files with information about the National Socialist Underground (NSU), a small far-right extremists were shredded by agency employees.

The records contained details about cooperation between the intelligence services and informants in the right-wing extremist group based in central Thuringia state.

Interior Minister Hans-Peter Friedrich said the working method of federal authorities needed a "fundamental rethink" after it emerged the crucial case files were shredded.

"What happened, of course, is unacceptable and that is why there must be consequences. I think that we need to take a very critical look at what happened at the Office for the Protection of the Constitution," he was quoted as saying.

The German press called for an overhaul of the country's intelligence security services and the use of informants, as "the loss of public confidence has reached a level which makes corrections imperative," the Tagesspiegel said.

"Fromm's resignation must be the trigger for a fundamental reform of the intelligence service," according to der Bild, the most circulated newspaper of the country.

The central-left wing opposition SPD faction leader Thomas Oppermann called for authorities "to have a complete change in mentality."

"The confidence in the German security forces has dropped to almost zero with us," chairman of the Turkish community in Germany, Kenan Kolat, said. "The state and certain organs of the state is blind," he added.