* Anti-Islam leader posed as Hitler, insulted refugees
* Resignation follows news of investigation for incitement
* Smaller turnout for PEGIDA rally in Leipzig (Adds rally in Leipzig)
By Madeline Chambers
BERLIN, Jan 21 (Reuters) - The leader of the fast-growing German anti-Muslim movement PEGIDA resigned on Wednesday after a photo of him posing as Hitler, and reports that he called refugees “scumbags”, prompted prosecutors to investigate him for inciting hatred.
Lutz Bachmann, a 41-year-old convicted burglar, had appeared on the front page of top-selling daily newspaper Bild on Wednesday sporting a Hitler moustache and haircut.
Bild and another paper said he had called asylum-seekers “animals” and “scumbags”.
The news came just as supporters of PEGIDA (Patriotic Europeans Against the Islamisation of the West), which is based in Dresden, staged a march in another east German city, Leipzig.
However, the so-called LEGIDA rally attracted only around 15,000 people — far fewer than the originally estimated 40,000 — and they were outnumbered by more than 20,000 people who joined several counter-demonstrations, officials said.
PEGIDA has forced itself onto the political agenda with its anti-immigrant slogans that have attracted tens of thousands to regular rallies in Dresden.
Bachmann, who denies he is a racist, had heard on Wednesday that he faces a criminal investigation for incitement to racial hatred. State prosecutors in Dresden said preliminary proceedings had been launched following the Bild report.
Kathrin Oertel, another PEGIDA co-founder, said Bachmann’s resignation had nothing to do with the Hitler photo, but was linked to his comments on refugees posted on the internet.
“Yes, I can confirm that Lutz Bachmann has offered his resignation and it was accepted,” Oertel told Reuters.
She added: “PEGIDA will go on.”
Bild quoted Bachmann as saying the Hitler photo had been taken as a joke, prompted by a recent satirical book about the Nazi dictator called “Er ist wieder da” (“Look Who’s Back”).
The Dresdner Morgenpost newspaper also quoted what it said were Facebook messages from Bachmann saying asylum seekers acted like “scumbags” at the welfare office and that extra security was needed “to protect employees from the animals”.
Deputy Chancellor Sigmar Gabriel, the Social Democrat leader, said the real face of PEGIDA had been exposed: “Anyone who puts on a Hitler disguise is either an idiot or a Nazi.”
In an interview with Reuters last week, Bachmann played down a ribald comment made in 2013, seized on by the media, that “eco-terrorist” Greens, first and foremost former party leader Claudia Roth, should be “summarily executed”.
“I am an impulsive person...I regret I didn’t resist my impulsiveness.” (Additional reporting by Michael Nienaber; Writing by Stephen Brown; Editing by Ralph Boulton and Crispian Balmer)