The Ifo economic institute, based in Munich, said its its business climate index, based on a monthly survey of some 7,000 firms, rose to 111.0 this month, from 110.4 in November - beating Reuters' forecast of 110.7.
"The Germany economy is in a festive mood," said Ifo chief Clemens Fuest.
The jump in business moral supports expectations that Germany's economy will rebound in the fourth quarter.
"The German economy is making a strong finish to the year," said Fuest.
He noted that both the manufacturing and wholesaling indices rose and manufacturers were planning to ramp up production in the months ahead.
Fuest added that Germany's construction sector "continues to break records".
"Since Germany’s reunification business has never been better for contractors," he said. "Improved business expectations indicate that the boom will continue in the months ahead."
Business confidence in Europe's largest economy dipped slightly in the immediate aftermath of the UK's EU referendum in June, however overall morale among German firms was not affected too badly by the Brexit vote.
In July, Berenberg analyst Florian Hense said: "German businesses seem to be handling the current period of political uncertainty well. For the time being, it seems almost like business as usual for the German economy, implying a moderate, but steady pace of expansion for the rest of the year driven by strong underlying fundamentals."