"The Second Commando Company of the KSK will be dissolved," the source said, asking not to be named ahead of an announcement Wednesday.
The KSK is the unified command for German Army special forces -- designed in the 1990s to be the equivalent of US Special Operations Command, according Janes, a defense analysis firm.
The unit has around 1,400 soldiers who embark on operations such anti-terror campaigns and hostage situations, according to the AFP news agency.
German Defense Minister Annegret Kramp-Karrenbauer reportedly told the Sueddeutsche Zeitung newspaper Tuesday that she had issued the order to partially dissolve the group, which had "become partially independent" from the chain of command," the AFP reported.
The minister also described the unit as having a "toxic leadership culture."
The newspaper Frankfurter Allgemeine Zeitung (FAZ) also revealed details of the plan on Tuesday.
FAZ said that the group "will be partially dissolved, after an accumulation of incidents and a notable build-up of right-wing extremists in the unit," and that about 70 soldiers would be affected.
KSK members have repeatedly been linked to extreme right wing ideologies. In May, a stash of weapons, ammunition and explosives was seized at the home of an elite German soldier. CNN affiliate RTL reported the man was a member of the KSK.
Germany's Military Counterintelligence Service had been investigating members of the special forces for a long time and the search of the house was conducted after a tip-off from the intelligence agency, Kramp-Karrenbauer said at the time.
A working group, set up in May by the minister to look into the issue, reported its conclusions on Tuesday.
The report advised that the KSK "cannot continue to exist in its current form" and must be "better integrated into the Bundeswehr," according to the AFP.