Tensions have risen between the two countries since a Russian-Georgian man was murdered in Berlin in August.
Russia said on Thursday that it would expel two German diplomats in retaliation for Berlin expelling two Russian officials last week.
The Russian Foreign Affairs Ministry said in a Facebook statement that the two German diplomats are now considered personae non gratae and have seven days to leave the country.
It also said that the ministry, which summoned the German ambassador earlier in the day, had "strongly protested the unfounded decision" to expel two of their diplomats.
The German Foreign Ministry said in response that it "regrets" the Russian government's decision which "sends the wrong signal and is unwarranted".
It also reiterated its stance that "a serious and immediate participation of the Russian authorities is urgently required from the point of view of the Federal Government".
Tensions between the two countries have risen since the murder of a Russian-Georgian activist in Berlin in August with German authorities suspecting Russian or Chechen involvement in the assassination.
"There is sufficient factual evidence that the killing of Tornike K. was carried out either on behalf of state agencies of the Russian Federation or those of the Autonomous Chechen Republic as part of the Russian Federation," German authorities said earlier this month in a statement also released by the German embassy in Moscow.
They ramped up further last week when Germany expelled two Russian diplomats from the country, accusing Moscow of not cooperating with the investigation.
Since then, the two countries have contradicted each other with Russian President Vladimir Putin telling a joint press conference in Paris last week that the victim, also known as Zelimkhan Khangoshvili, had fought on the side of anti-Moscow separatists.
"He is a cruel and blood-thirsty person. In just one of the attacks in which he took part, he killed 98 people. He was one of the organisers of explosions in the Moscow metro," he said, adding that Russia had requested his extradition but been denied.
Berlin said however that it believes "Tornike K. was actually involved in military conflicts with the Russian Federation", fighting in a Chechen militia from 2000 to 2004 and on behalf of the Georgian government in August 2008 in a unit set up to defend South Ossetia.
Authorities have identified Vadim S. as their main suspect and said that "Russian authorities said (his passport) was a genuine identity document".
"There are no indications that the act was carried out on behalf of a non-state actor. The investigation has also revealed no evidence whatsoever of any connection between the accused and the victim, let alone a personal motive of the accused," they added.
Berlin also said earlier this week that it was not aware Moscow had requested extradition, with Chancellor Angela Merkel also saying that she had told her Russian counterpart at their meeting in Paris that she expected Moscow to provide information for the investigation.