The fire broke out in an ancillary area of the Krümmel power station mid-afternoon, sending thick black smoke billowing into the sky east of Hamburg, reported police -- who said they were fielding numerous calls from alarmed locals.
According to a fire brigade spokesman, more than 100 firefighters used foam to extinguish the blaze.
The blaze occurred when the cooling fluid of a huge transformer unit caught fire. Police did not say what the burning fluid was, but surplus heat from electrical transformers is usually conducted away with oil.
The transformer complex alters the power voltage so it can be fed into the national power grid.
The nuclear reactor itself did not catch fire, and no one was injured.
"The nuclear reactor shut down automatically as soon as it was disconnected from the power grid," said Ivo Banek, a spokesman for plant owner Vattenfall Europe. "It looked more dramatic than it really was."
The state of Schleswig-Holstein's nuclear regulatory agency disclosed that a second Vattenfall nuclear site had been shut down some two hours earlier. The other plant, at Brunsbüttel, west of Hamburg, had to be idled because of an overload.
Banek said this was caused by a short-circuit in a switching unit.
The share price of Vattenfall Europe, which owns both plants, remained steady on the Frankfurt stock market.
Experts from the environmental organization Greenpeace immediately visited the Krümmel reactor with a Geiger counter.
"Our results showed there was no increased radioactivity," said Greenpeace spokesman Thomas Breuer.
The Vattenfall connection
Both plants use the water of the Elbe river as a coolant and are controlled by Swedish state-owned utility Vattenfall.
However neither is a sister plant to Vattenfall's Forsmark plant,140 kilometers (87 miles) north of Stockholm, where there have been coolant leaks in the past year.
Krümmel, the world's biggest boiling-water reactor, was built in 1984 by Hamburg's municipal power company, which was later taken over by Vattenfall. It produces 10.5 billion kilowatt-hours of electricity annually.
The plant has long been the focus of controversy, with critics holding it responsible for a high incidence of leukemia cases in the region.
Within the last year, 15 "incidents" at the plant were registered, making it one of the most unstable in Europe.
While the causes of the two incidents remain unclear, the fire in Krümmel triggered angry reaction among politicians.
"I demand an immediate and comprehensive investigation of this incident," said Green party head Reinhard Bütikofer. "It is simply irresponsible to ignore such safety lapses as the nuclear lobby does."
Meanwhile, Schleswig-Holstein's Social Democrat Interior Minister Ralf Stegner reiterated his party's determination to continue pursuing their course of nuclear phase-out.