Waving Israeli flags, the demonstrators attacked Mr Ahmadinejad's anti-Israel rhetoric and repeated denial of the Holocaust at the protest organised by the local Jewish community and the German trade union alliance.
Bavarian state interior minister Guenther Beckstein said the demonstration was not targeted against the Iranian team or the Iranian people but against "a man who has placed himself outside civilization".
"A criminal like Ahmadinejad is not welcome (in Germany)," he said. "Let us show that Bavaria and Germany as well as the entire Western world stand firmly by Israel and our Jewish fellow citizens."
Police said the event went off without incident. Mr Ahmadinejad has been widely condemned for describing the Holocaust as a "myth" and calling for Israel to be "wiped off the map".
He has said he would like to attend the football extravaganza running through to July 9 but has made no firm plans. A source close to him said he would be watching Sunday's game on television in his office in Tehran.
Iranian Vice President Mohammad Aliabadi was granted a German visa and visited the Iranian team in Nuremberg on Saturday ahead of their first World Cup match.
Michel Friedman, a television presenter and high-profile member of
Germany's Jewish community, told the rally it was scandalous that Mr Aliabadi had been allowed to enter the country.
Earlier, police broke up a pro-Iranian rally by neo-Nazis in Nuremberg, a former Nazi stronghold.
The 16 men and women there were dressed in Iranian jerseys, hoisting Iranian flags and distributing flyers demanding that the demonstration against Mr Ahmadinejad be banned.
Amid the controversy, Iran coach Branko Ivankovic told reporters on Saturday to stop asking him about politics.
"These political questions are not for me. I think it's not for me and it's not for people here. Please just ask about my team against Mexico," said Iran’s Croatian-born coach. Mexico won the match 3-1.