FGS Sachsen, a 124 class air-defence frigate, was engaged in the military exercise alongside the anti-submarine frigate, the FGS Luebeck.
The ship was several hours into the drill when it attempted to fire an SM-2 anti-aircraft missile as part of the exercise.
The exhaust of the rocket became trapped and exploded in the vertical launcher, causing a fire to spread across the deck.
A man was heard expressing his shock, stating: “Oh sh*t! Fire on the ship.”
The fire did not spread to other rocket launchers, and only two crew members suffered minor “stress-related” injuries.
However the ship reportedly suffered water damage following the activation of the ship’s sprinkler system.
German Captain Thomas Hacken commented on the explosion to the Bundeswehr, stating: “We were standing in front of a glistening and glowing hot wall of fire.”
Joseph Dempsey, research associate for Defence and Military Analysis, also commented on the event, stating: “Damage sustained to Sachsen (F219) following SM-2 misfire.
“Fortunately only two crew sustained minor injuries, this could have been a lot worse.”
The ship made a diversion to Harstad in Norway following the explosion, before returning to its home base of Wilhelmshaven in north Germany.
The German Bundeswehr reported that the FGS Sachsen had previously launched another SM-2 missile without any glitch, and that a technical check on the missile had been carried out prior to its launch.
Following the explosion, the German Navy has reportedly banned three of its most technologically developed ships from launching their rockets while investigations are carried out.
The incident on FGS Sachsen is similar to a missile explosion which occurred on board the USS The Sullivans in 2015.
A similar SM-2 Block IIA missile exploded shortly after launch, and only resulted in around $100,000 of damage.
The US Navy placed older models of the SM-2 missiles on a restricted ‘Wartime Use Only’ list following the explosion.