German prosecutors have shelved their Nazi war crimes investigation of a 96-year-old Minnesota carpenter exposed as a former commander in an SS-led unit, saying he is not fit to stand trial.

The decision came more than two years after an Associated Press news agency story established that Michael Karkoc commanded a unit in the SS-led Ukrainian Self Defence Legion.

The unit is accused of burning villages filled with women and children, based on wartime documents, evidence from other members of the unit and Karkoc's own Ukrainian-language memoir.

Efraim Zuroff, head Nazi hunter for the Simon Wiesenthal Centre, questioned why the US Department of Justice itself had not initiated deportation proceedings against Karkoc after the evidence was revealed.

"They should have been aware of his presence in the United States a long time ago and if they were aware and did not take any action, that's very unfortunate, and I would say atypical, but it's obviously a failure," he said.

"If they weren't aware of him then it means he slipped through the cracks, but once AP exposed him they should have moved ahead as quickly as possible."

Karkoc's son, Andriy Karkoc, praised Germany's decision, but said his family could not recover from AP's "unsupported smears".

"My father was and is innocent," he said.

He said the Ukranian Self Defence Legion was a guerrilla group fighting against the Nazis.

"I never in my wildest dreamed, dreams, imagined anything like this would happen to our family and particularly to my father who has done nothing but build and contribute his entire life," he said.

In Germany, Munich prosecutor Peter Preuss said Karkoc's lawyer had declined to allow him to be examined by a medical expert from Germany, and that his office's decision was based on "comprehensive medical documentation" from doctors at the geriatric hospital in the US where he is being treated.

He said doctors there had provided prosecutors with a comprehensive assessment of Karkoc's health over the past year, which was evaluated by a medical expert in Germany.

"There are no doubts about the authenticity of the documentation of his treatment," said Mr Preuss, who would not provide specifics about Karkoc's health on privacy grounds.

The German investigation began after AP's story in June, 2013, which established Karkoc was a commander of the unit and then lied to American immigration officials to get into the United States a few years after the Second World War.

A second report uncovered evidence that Karkoc himself ordered his men in 1944 to attack a Polish village in which dozens of civilians were killed, contradicting statements from his family that he was never at the scene.

But Andriy Karkoc said that there has never been any evidence or documentation to prove AP's story, and he questioned the validity of the agency's sources.

He said the ordeal has taken a toll on his father, who has Alzheimer's disease and is not capable of suing AP for its "salacious manufactured slanders".

But Paul Colford, AP's vice president and director of media relations, said: "The Associated Press' stories were solidly reported and well-documented. We stand by them."

The US Department of Justice has refused to say whether it had ever investigated Michael Karkoc, citing its policy of neither confirming nor denying investigations.

But Andriy Karkoc said a top department official had visited his father twice since the story appeared, the last time as recently as several months ago.

Department spokesman Peter Carr said he also could not comment on whether his office would now pursue deportation proceedings against Michael Karkoc.

"As we have said previously, we are aware of the allegations but will decline further comment at this time," he said.

Mr Zuroff said deportation proceedings would have sent a powerful moral message, even if the Justice Department had thought lengthy deportation proceedings would have been fruitless at Karkoc's advanced age.

"They should have done it, if nothing else to make a public statement that we are aware of this individual in the United States who never should have been admitted in the first place," he said.

Poland also initiated an investigation into Karkoc, which remains open.

State National Remembrance Institute spokesman Andrzej Arseniuk said his office's prosecutors were currently awaiting a reply from the US to a request for help identifying handwriting believed to be Karkoc's.

The German investigation has taken longer than usual, because prosecutors first had to wait for a court ruling that they had jurisdiction in the case.

That came last year, when the Federal Court of Justice said Karkoc's service in the SS-led unit made him the "holder of a German office".

That gave Germany the legal right to prosecute him even though he is not German, his alleged crimes were against non-Germans and they were not committed on German soil.

Someone in that role "served the purposes of the Nazi state's world view", the court said.

When cases in Germany are shelved they can be reopened at any time if circumstances change, but in this case Mr Preuss said that is very unlikely.

The news came on the day a Jewish newspaper in Britain reported that Stephen Ankier, a retired clinical pharmacologist whose Nazi war crimes research helped lead AP to Karkoc, had located a former rifleman in Karkoc's unit living near Manchester.

Mr Ankier said he had not found anything linking the 90-year-old man to war crimes but passed details on to German, American and Polish prosecutors many months ago in case they wanted him as a possible witness in the Karkoc case.

Mr Preuss would not say whether German investigators had planned to question him, but said the man was not considered a suspect.