Authorities said the extremists were associating with like-minded inmates under the guise of working with an organization that provides aid to far-right inmates, Deutsche Welle reported Wednesday.
"You have to realize that there are several overlapping, linked-up networks. It's a whole system of networks and relationships," said Bernd Wagner, a former police detective who is now an expert on the far right.
Guards at Hunfeld prison near Frankfurt in the German state of Hesse identified the network, which was communicating through letters and secret messages in magazine ads disguised by innocent-sounding words and symbols, Deutsche Welle reported.
Hessian Justice Minister Jorg-Uwe Hahn said the development of the neo-Nazi cell can be traced back to the federal ban on HNG, a far-right aid organization for national political prisoners and their families.
"We have found material which leads us to believe that relationships were being built up using the structure of an association -- not just across the state of Hesse, but nationally."
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