The six-member jury described the word as a "relic of dictatorships, including that of the Nazis".
"Used as a reproach against politicians, the word is both un-nuanced and defamatory, stifling the serious conversation and debates necessary in a democracy," it said in a statement.
Chancellor Angela Merkel and Vice-Chancellor Sigmar Gabriel have both been labelled "Volksverraeter" by far-right hecklers over the government's liberal refugee policy that has seen more than a million asylum seekers arrive since 2015.
The term is heavily loaded in Germany, where it evokes memories of Adolf Hitler and his henchmen going after those they labelled enemies of the nation.
It is one of a number of formerly taboo Nazi-era words that have in recent years been revived by groups such as the anti-Islam Pegida movement and the AfD party, which rails against the migrant influx.
The "worst word of the year" award typically goes to an offensive term that has gained popularity in Germany over the past 12 months in a bid to raise awareness of the inflammatory words used in public discourse.
Last year's dubious honour went to "Gutmensch", which translates as "do-gooder" and is used to describe people seen as naively opening their arms to migrants and refugees without thinking through the consequences.
In 2014, the winner was "Luegenpresse" (lying press), another Nazi-era term that has been reclaimed by anti-migrant groups to denigrate the mainstream press.
The word is chosen from submissions sent in by the public.
The jury, led by Nina Janich of the Technical University Darmstadt, is made up of four linguists and a journalist as well as a different guest judge each year.
The panel received over 1,000 submissions this year, it said.
