The proposal would require companies to provide a round-the-clock service for users to flag illegal content, which would have to be removed by the site within seven days. That person could face an individually levied fine of five million euros if companies break laws governing what can be published.
Mr Maas said: 'We must increase the pressure on social networks.
Tuesday's announcement comes after a warning previous year from justice minister Heiko Maas that the government would monitor how social media companies were dealing with increasing hate crime as well as with deleting illegal content on their respective platforms - and would intervene if their response was deemed inadequate.
Content that is clearly illegal would have to be removed within 24 hours, while the companies would have a week to remove questionable content that is judged illegal later.
The Social Democrat politician said voluntary steps taken by social media companies including Facebook and Twitter had led to some improvement but were not enough.
According to the study, which was conducted by the German government, Facebook is deleting 39 percent of the flagged content, while Twitter managed just 1 percent.
Though social media sites are getting better at responding to complaints of defamatory posts, there's a lot of work still to do, Maas said. "We need legal regulations to make companies even more obligated to eradicate criminal offences".
"Too few criminal comments are deleted and they are not erased quickly enough", Mr Maas added. Justice Minister Heiko Maas said the measures, which will become part of a bill to be adopted by German lawmakers in the coming months, would not restrict freedom of speech.
In a statement, the company said: 'We have clear rules against hate speech and are working hard to remove such content from our platform'.
Germany already has some of the world's toughest hate speech laws covering defamation, slander, public incitement to commit crimes and threats of violence.
"By the end of the year over 700 people will be working on content review for Facebook in Berlin".
It has taken on new urgency as the country prepares for parliamentary elections in September. Facebook reportedly said its own research showed it had higher rates of removal.