Following allegations of corruption, Germany said it is suspending yearly payments of 200 million euros to the Global Fund Against AIDS, TB and Malaria.
"We have initiated a special enquiry and stopped all German payments into this fund until further notice, meaning that payments for 2011 have not been made yet," a spokesman for the German development ministry said.
Development Minister Dirk Niebel "is taking these allegations very seriously. We hope that the fund will move to provide clarity on these allegations," the spokesman told a regular government briefing.
Germany is the third largest contributor to what is the biggest single source of funding to tackle three of the world's greatest killer diseases, with an overall budget of 21.7 billion dollars drawn from 150 countries.
Recent media reports said billions of dollars may have been misappropriated from the fund and that controls to monitor the flow of funds were non-existent or inadequate.
The fund rejected the allegations on Tuesday, after reports of Sweden's suspension of payments, as "irresponsible, false and misleading."
It said that following audits or investigations in 33 of the 145 countries where the fund has grants, it found 34 million dollars in misappropriated or unsubstantiated funds.
While calling any fraud "unacceptable," it stressed that this amount represented 0.3 percent of the 13 billion dollars disbursed to countries by the fund so far.
The development ministry spokesman said it has invited a representative from the fund to Berlin for talks.
The UN-backed agency provides grants for selected projects in developing nations, allocating money provided by governments and private donors such as the Bill and Melinda Gates Foundation.