One expert said the decision could be a "game-changer" for internet-connected devices.
The watches are generally aimed at kids from the age of five to 12 years old.
A lot of these smartwatches for kids are marketed and sold as toys, notes the Gizmodo report, but have advanced GPS, Wi-Fi and Bluetooth connectivity, microphones, onboard memory and other such techs.
"Parents can use these children's watches to listen in to the children's surroundings without detection via an app", Jochen Homann, the agency president, said. "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.
"Poorly secured smart devices often allow for privacy invasion".
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This is not the first time German regulators have stepped into ban privacy-invading devices. In February, the regulator prohibited the doll "My Friend Cayla" and labeled it as an "espionage device".
The agency was not concerned by parents spying on children, as it appears it's the aim of the smartwatches to allow the parents to monitor their kids' activities.
These are certain types of smartwatches that feature a built-in SIM card. "Just last month, the Norwegian Consumer Council (NCC) reported that some childrens" watches had security flaws, such as storing and transmitting unencrypted data. They could also theoretically be used for hackers to track children's locations, an obviously harrowing prospect for any parent. A 49-page report on smartwatches for children (with the unfortunate title of #WatchOut) details all the ways in which they are a security nightmare.
The agency also asked schools to "pay more attention" to such watches among students.
He called for Europe-wide measures to increase the security of such devices.