The home-made construction featured two nooses and signs reading “reserved”, “Angela Markel” and “Sigmar Gabriel”.
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Prosecutors said they may consider charges against the PEGIDA march organisers who came up with the gallows humour.
During the rally many protesters called for refugees to be expelled.
PEGIDA was formed a year ago and attracts largely middle-class people opposed to the mass immigration of refugees into Germany in particular and Europe in general. Berlin has granted asylum to a few 600,000 people since the start of the year, with an estimated 10,000 refugees crossing into the country every day, according to the Foreign Ministry.
PEGIDA, the German acronym for “Patriotic Europeans against the Islamization of the West”, has seen a fresh rise in support in recent months, though rallies remain smaller than their peak of 25,000 in January.
There were also demonstrations in the cities of Leipzig and Chemnitz.
The wooden model could fulfil the criminal offence of disturbing the peace through the threat of crime and the public incitement to criminal activity, said Jan Hille, the public prosecutor in Dresden.
Not all Germans are welcoming refugees with open arms.
Germany has become a magnet for numerous hundreds of thousands of refugees and migrants fleeing war and poverty in the Middle East, Africa and Asia – still continuing to make their way across Europe.
Merkel has basically permitted officers to process applications of asylum seekers even if they had traveled through other European Union countries first.
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“A line has been crossed here”, said Michael Grosse-Broemer, deputy floor leader of Merkel’s conservative CDU in parliament.
