Mr Scholz said a German-led battalion in Lithuania could be developed into a “robust fighting brigade” to deter and defend against any invasion.
On a trip to Vilnius, he heard appeals from the leaders of Lithuania, Latvia and Estonia to reinforce Nato’s defences in the “very sensitive security situation” faced by the three Baltic states.
Estonia and Latvia border the Russian mainland, the only Nato countries other than Norway to do so, while Lithuania is sandwiched between Kremlin ally Belarus and the Russian enclave of Kaliningrad.
All three ex-Soviet countries have announced increases in defence spending since Russia invaded Ukraine but are asking their western allies to provide more military muscle. Nato Secretary General Jens Stoltenberg has spoken of resetting the bloc's defence posture.
Lithuanian President Gitanas Nauseda said the country was ready to host more German forces that would “serve as a guarantee for the security of the whole alliance”.
He called on Nato leaders meeting in Madrid this month to agree “a shift from deterrence to forward defence, from battalion to brigade, from air policing to air defence”.
Mr Scholz visited some of the German soldiers stationed in Lithuania as part of what is known as Nato’s Enhanced Forward Presence. The battalion of 1,600 includes troops from Denmark, Belgium and other countries.
“We have decided that we will strengthen our contribution,” said Mr Scholz after talks with Mr Nauseda and prime ministers Kaja Kallas of Estonia and Krisjanis Karins of Latvia.
“We are ready to strengthen our engagement and develop into a robust fighting brigade that can organise the deterrence and defence against any aggression against Lithuania.”
Britain leads an equivalent defensive force in Estonia, while Canadian forces are the core of Latvia’s battalion and US troops lead the defence of Poland.
Nato agreed in March to establish four more battalions in Bulgaria, Hungary, Romania and Slovakia to extend the enhanced presence to the Black Sea.
Baltic nations Sweden and Finland last month submitted applications to join Nato, coming after Russian President Vladimir Putin had ordered the invasion of Ukraine and signalling an end to decades of military neutrality.
“Putin has achieved quite an unexpected result: an unprovoked war against Ukraine has resulted in Europe and the alliance coming together,” said Mr Karins.
The Baltic leaders, all vocal supporters of Ukraine, praised Mr Scholz for bringing in a special €100 billion ($107bn) budget to upgrade Germany’s military after years of underinvestment.
But Germany has baulked at some of the demands of Baltic states, including an embargo on Russian gas and a swift approval for Ukraine’s application to join the European Union.
Mr Scholz said Germany was replacing Russian gas as quickly as possible but “can only go as quickly as physics allows”.