The German government is seeking a new home for a tapestry of a 12th century legend that was commissioned by Nazi Propaganda Minister Joseph Goebbels.

The tapestry, commissioned by Goebbels in 1943, disappeared for decades. But it has recently become property of the federal office for unresolved property issues after a drawn-out court battle, said a spokesperson for the office.

The wall-hanging, which shows scenes from the Nibelungenlied, an epic 12th century yarn of dragon-slaying knights and stolen treasure, has picked up an equally mysterious past since its disappearance at the end of World War II.

The nine square meter carpet was delivered to Goebbel's Ministry of Propaganda in 1945 in the last days of the war and fell briefly into Allied hands before it turned up at an antiques dealer in Dresden.

In the 1980s, Costa Cordalis, a Greek-born popular singer who had hits in Germany, bought the rug and smuggled it back to West Germany with the intention of making a profit.

"I didn't know it belonged to Goebbels," he told German daily, Bild.

Unable to shift the obscure piece, it remained in the singer's possession until 2007 when a fortune teller friend told him she had found a potential buyer, Mr Cordalis told the paper.

But police seized the carpet from the singer on the grounds that it was state property, said a police spokesman.

The tapestry gathered dust in police vaults for a further two years until a court in Rottweil, southwestern Germany, ruled it was the former property of the Third Reich and therefore belonged to the state. But its future remains uncertain.

"We don't want to have it hanging around in our depot," said a spokeman for the office.