An investigation by German public broadcaster ZDF has uncovered a scandal involving the use of taxpayers' money by the far-right Alternative for Germany party, or AfD, to hire and pay family members.

The AfD has grown from its original heartland in the former German Democratic Republic to become an increasingly significant force in German national politics, and holds 151 of the 630 seats in Germany's parliament, the Bundestag, making it the second-largest party.

The eastern state of Saxony-Anhalt is holding an election in September where Ulrich Siegmund is a major contender to become the first AfD representative to be elected premier of one of Germany's 16 states.

But his name has come up in the nepotism investigation, after it emerged his father is employed by a member of the Bundestag on an annual salary of more than 92,000 euros ($109,503).

It is forbidden for Bundestag members to employ family members, but it is not forbidden for them to employ relatives of political colleagues.

The allegations around rising star Siegmund are the latest of a string of similar claims involving other elected AfD representatives employing close associates on the public pay roll.

The Financial Times reports Siegmund has not responded to its request for a comment, but he has spoken about what he suggests is a smear campaign while his party is on the verge of a "historic sensation" in Saxony-Anhalt, and as one of the most active German politicians on social media, he recently shared an Instagram video in which he did not reject the allegation, but spoke of the importance of the AfD hiring people it can "rely on". This comes after previous posts in which he spoke of the threat of infiltration of the party by German intelligence services, or undercover journalists.

Despite the fact that no rules have been broken, the AfD's national co-leader Tino Chrupalla admitted in a weekend television interview that the allegations had left "a bad taste", adding that other political parties also employed members of their families.

A breakthrough success for the AfD would pose a major challenge to Germany's mainstream political parties, which have long observed an unwritten "firewall" policy of non-engagement and non-cooperation with the far-right group.

Chancellor Friedrich Merz, whose mainstream center-right Christian Democratic Union-Christian Social Union bloc is the largest in the Bundestag with 208 seats but who has no overall majority, recently said: "We are worlds apart from that party (the AfD)".