German authorities were tipped off by a "friendly intelligence service" about the plan, which IS had planned to carry out around midnight, said Joachim Herrmann, interior minister for the southern state of Bavaria.
"Five to seven" suspects were believed to be planning to carry out a "suicide attack" as festivities were under way to welcome in the New Year, Munich police chief Hubertus Andrae said.
Police evacuated Munich's main rail station and another station in the western suburb of Pasing after an alert of a possible "terror attack". Rail services at the sites were also halted and police urged the public to keep away from large gatherings.
Some 550 officers had been deployed to track down the suspects and secure the sites, although no arrests have been made yet.
Police officers, some in riot gear, were posted at different entrances of Munich's main rail station which was eerily quiet on a night of traditionally raucous celebrations. Some revellers sought to enter the station but were turned away.
A police spokeswoman said it could not be ruled out that the attackers could seek another target. German media had earlier reported that police were acting on a tip from French authorities.

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