Loeb, who goes into the event as the favourite, having won in Germany every year since it joined the WRC, completed the 5.32 kilometre test, in 3 minutes 43.6 seconds in his Citroen C4 WRC.
Francois Duval, on his debut event with the OMV Kronos Citroen World Rally Team, was next fastest. The Belgian was just 0.2 seconds behind Loeb.
Dani Sordo gave Citroen a clean sweep of the top three placings.
The rally begins on Friday morning (German time) with SS1, the 19.79 kilometre run through Ruwertal/Fell, starting at 10.13 hours local time.
Leading shakedown times:
1. Sebastien Loeb Citroen Total WRT C4 WRC 3mins 43.6secs M
2. Francois Duval OMV Kronos Citroen Xsara WRC 3mins 43.8secs M
3. Dani Sordo Citroen Total WRT C4 WRC 3mins 44.9secs M
4. Jan Kopecky Czech RT-Kopecky Fabia WRC 3mins 47.2secs
5. Petter Solberg Subaru WRT Impreza WRC 2007 3mins 47.7secs M
6. Manfred Stohl OMV Kronos Citroen Xsara WRC 3mins 48.1secs M
7. Marcus Gronholm BP Ford Focus RS WRC 07 3mins 48.6secs M
8. Mikko Hirvonen BP Ford Focus RS WRC 07 3mins 48.8secs M
= Chris Atkinson Subaru WRT Impreza WRC 2006 3mins 48.8secs M
10. Toni Gardemeister Astra-PH Sport Citroen Xsara WRC 3mins 50.3secs
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