The resolution piles the pressure on the government to draw up clear rules for the practice, which critics say could increase seismic risks and even pollute drinking water.
The Bundesrat upper house, which represents Germany's 16 federal states, passed a resolution that demands an assessment of the environmental impact of fracking and public consultation before it can be started.
"This is about rejecting the use of this technology until the risks are cleared up 100%," Torsten Albig, the Social Democrat (SPD) premier of the northern state of Schleswig Holstein, said in the Bundesrat, adding that peoples' safety had to be the top priority.
However, EU Energy Commissioner Günther Oettinger urged Germany to keep an open mind on fracking, saying the EU wanted to develop the practice to reduce Europe’s import-reliance on conventional supplies.
Germany's powerful industrial lobby has complained that companies may lose their competitive edge compared to U.S. rivals because of the boom which has led to a sharp fall in gas prices there.
Energy costs rather than labour costs were now a decisive factor for some energy-intensive industries in deciding where to set up, Oettinger told a conference in Munich, warning that Europe could face deindustrialisation.
In the US, new industrial processes have created a shale gas boom in recent years, freeing the country of importing needs and changing gas flows in the world market.
The US oil and gas industry is reportedly trying to ease environmental concerns about the practice by developing non-toxic drilling fluids for use in the project. But technical and cost issues may inhibit industry uptake, and green groups warn that problems such as methane release and flowback of polluted water would remain unaddressed.
Some analysts believe that a receding need for Middle East energy resources could diminish US involvement in the region and free up military capacity for deployments elsewhere.
Others argue that the region will still be a crucial energy hub for other states that the US cannot completely disengage from.
Either way, Russia’s gas-driven economy will face challenges from the US shale boom, and has already begun discounting sales after Gazprom’s operating profit shrank by more than 25% in the first nine months of last year.
The resolution was proposed by states run by the opposition SPD and Greens in the house, where Merkel's centre-right coalition do not have majority.
Permits for fracking, issued by individual states, may only be granted if it is absolutely clear that there is no risk of the water supply being affected, according to the resolution.
Germany produces only 14% of the gas it uses and shale gas could help mitigate the effects of dwindling resources. Some companies, including ExxonMobil are pushing Germany to explore the possibilities.
Germany's BGR Institute for Geoscience and Natural Resources has said 0.7 trillion to 2.3 trillion cubic metres of the gas could be technically extracted. The bulk of that is located in the northern German plain.
Hydraulic fracturing, or fracking, involves pumping vast quantities of water and chemicals at high pressure through drill holes to prop open shale rocks and free gas trapped underground.
Germany has no national rules on fracking, leaving individual states to decide whether or not to issue permits. However, in recent months, there has been a de facto freeze on granting licences in Germany.
Some other European countries, including Ukraine, Britain and Poland are also beginning to explore the possibilities of shale gas.