Officials from Neuperlach Sud, outside Munich, said the prospect of a wall was raised after locals complained about 160 unaccompanied young refugees moving into the area.
The residents argued the values of their houses would decrease due to the proximity of the refugee centre and the noise issuing from it.
The nearest houses to the shelter are located 25 meters away and are separated by a road.
When finished, the barrier will stand taller than the Berlin Wall. A judge in Munich approved the construction of the wall, according to local newspaper Merkur.
Deputy district chairman Guido Bucholtz said: “This is absolute madness, I was frightened when I saw this monster of a wall.
“When we talk about integration of refugees, I imagined something different. It just makes me feel bad.”
Construction of the wall is due to be completed in spring next year.
In October, more than 17,000 refugees successfully sued the German government for not giving them full refugee status.
It followed a major backlash towards Chancellor Angela Merkel’s “open door” policy which saw 1.1m refugees arriving in the country in 2015.
The German Interior Ministry wants to stop migrants reaching Europe's Mediterranean coast by picking them up at sea and returning them to Africa, the Welt am Sonntag newspaper reported on Sunday.
More than a million refugees were accepted into Germany in 2015, making it the main European destination for people feeling the conflicts in Syria and Africa.
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