The military personnel along with Tornado surveillance jets and other hardware -- deployed as part of the international coalition against the Islamic State group -- will be moved to Jordan's Azraq base instead, Defence Minister Ursula von der Leyen said.
Chancellor Angela Merkel sought to play down the dispute, saying she "views this issue as a very localised one".
With the decision now made to move troops out of Turkey, Berlin can now "concentrate on other points" in its negotiations with Ankara, she added.
Germany has more than 250 troops stationed in Incirlik, flying surveillance missions over Syria and refuelling flights for partner nations battling the IS jihadists.
But the deployment has become a bone of contention after Ankara repeatedly refused to allow German lawmakers to visit the base.
Ankara had first denied German parliamentarians the right to travel to the site for several months last year, angered by a Bundestag vote to recognise the Ottoman Empire's World War I-era massacre of Armenians as a genocide.
A fresh row over lawmakers' visits to the air base erupted last month.
This time, Ankara was protesting the fact that Berlin offered political asylum to Turkish nationals accused of complicity in the attempted coup against President Recep Tayyip Erdogan in July 2016.
German Foreign Minister Sigmar Gabriel travelled to Turkey on Monday to hold last-ditch talks with his counterpart Mevlut Cavusoglu, but failed to sway Ankara.
After the talks, Cavusoglu repeated that "we would not like to see members of FETO take shelter in friendly country Germany", referring to a movement led by US-based Muslim preacher Fethullah Gulen, whom Ankara accuses of orchestrating the failed coup.
Berlin has argued that it cannot deploy its soldiers in places which lawmakers are unable to visit, given that all military missions are mandated by parliament.
Von der Leyen said that Azraq in Jordan would be a new base for Germany's troops.
The transfer will disrupt its air refuelling missions for two or three weeks, while Tornado surveillance flights will cease for two to three months, she said.
"I will therefore immediately speak with the Americans (who lead) the international coalition against terror, on how the gaps can be filled so that there is no negative impact," she said, adding that "following that, we will draw up our time schedule".
The transfer will not require a new mandate from the German parliament, as the current one specifies the deployment site as the airspace over Syria and its neighbouring countries, but does not specify the base, von der Leyen said.
Ties between the NATO allies have been strained since the failed coup in Turkey, and tensions have worsened over multiple issues including a referendum campaign to expand Erdogan's powers.
Relations plunged further after Turkey imprisoned Deniz Yucel, a German-Turkish journalist with Germany's Die Welt daily, on terror charges earlier this year.
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