About 30 people, including children, were injured on Monday, when a car plowed into a carnival procession in the small German town of Volkmarsen.
Police arrested the driver, but declined to comment on a motive.
Prosecutors in Frankfurt said the 29-year-old suspect was a German national who faces charges of attempted homicide over the incident in the western state of Hesse.
The investigation was continuing “in all directions,” they said in a statement, after police stopped short of calling the incident an attack.
The drama came as Germany remained on high alert following a shooting spree on Wednesday last week by a far-right gunman in the city of Hanau, also in Hesse, who killed 10 people.
Eyewitness reports at the carnival parade described the driver plowing through a barrier in a silver car and driving straight through the crowd at high speed.
“It appears to have been an intentional act,” a local police spokesman told reporters, but said the incident was not being classified as an attack until investigators had more information.
About 30 people were injured, some of them seriously, prosecutors said.
The driver was also injured and was receiving medical care, they added.
Citing sources close to the investigation, Der Spiegel weekly said the driver had apparently “consumed a high level of alcohol.”
German Chancellor Angela Merkel said her thoughts are with family of the victims, as she wished them “a speedy and complete recovery,” according to her spokeswoman on Twitter.
Hesse Premier Volker Bouffier said he was “shocked at the terrible act,” but added: “The circumstances surrounding this act remain unclear and I urge you not to speculate about possible motives.”
As in many parts of the country, residents in Volkmarsen were celebrating Rose Monday, a highlight of annual carnival festivities that sees adults and children dress up and attend parades where people play music and throw candies from floats.
Steffen Roettger said his two daughters were at the parade and called him right after the incident happened at about 1:30pm GMT.
“My 10-year-old was pulled aside and only narrowly avoided being hit,” he told NTV broadcaster.
He said the girl was “in shock” and needed medical attention after seeing people “lying around everywhere.”
“She won’t get those images out of her head in a hurry,” he said.
Elmar Schulten, a reporter for the local Waldeckische Landeszeitung newspaper, told the Bild daily that locals in the town of about 7,000 people were in disbelief.
“We always thought this kind of thing only happened elsewhere,” he said.
Images from the scene showed police officers and rescue vehicles next to a silver Mercedes hatchback, having apparently come to a halt outside a Rewe supermarket.
A pile of debris can be seen on the road next to the car, including a broken wooden cart, a knocked-over traffic cone and bottles of sparkling wine.
Several dozen people were pictured milling around on the sidewalk before the area was sealed off by police.
Police in Hesse announced on Twitter that all carnival parades across the state had been canceled as a precaution.
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