The agency's actions reflect growing concerns about the security and privacy risks associated with the exploding number of smart gadgets, often called the "internet of things".
Earlier this year, Germany's telecommunications watchdog, the Federal Network Agency (Bundesnetzagentur), found that a smart toy called "My Friend Cayla" breached the country's strict privacy laws as it amounted to being a "concealed transmitting device".
One expert said the decision could be a "game-changer" for internet-connected devices.
"Using an app, parents can use such children's watches to listen unnoticed to the child's environment and they are to be regarded as unauthorized transmitting equipment", said Jochen Homann, President of the Federal Network Agency. "According to our research, parents' watches are also being used to listen to teachers in the classroom". "That is really concerning when it comes to kids' Global Positioning System tracking watches - the very watches that are supposed to help keep them safe", said Ken Munro, a security expert at Pen Test Partners.
The Agency is now urging parents to destroy any such devices and is advising schools to pay more attention to watches with conversation recording function among students.
The ban was passed after concerns that these watches could be used as illegal spying devices. The watches usually have a sim card and are controlled through an app, and have what the FNA described as a "baby monitor" or "monitor function" to allow the watch to be used as a listening device. In Germany, a number of providers sell smartwatches targeted towards children between the ages of five and 12.
Even if today's ban didn't center around security issues, security researchers are happy about the decision either way.