Streets in the area were closed off as the 40-by-50-centimeter device was destroyed in a controlled explosion. It is not known who was behind the package.
The package contained a "cylindrical object with cables, batteries and nails", but police tweeted that "currently" no detonator had been found.
Interior Minister Karl-Heinz Schroeter said the powder would be analysed to determine if it was genuine or a dummy.
1 juvenile dead, 5 more injured in shooting on Cleveland's east side
Around 9 p.m., a 33-year-old man was transported to Metro after suffering a stab wound to the chest. The alcohol store proprietor and his 12-year-old child went outside to perceive what was occurring.
"We are now carrying out searches because the package was delivered, apparently, and possibly other packages had been delivered nearby the Christmas market".
"But the people here understand what's going on and take the measures very seriously".
Local newspaper Potsdamer Neueste Nachrichten reported the device had wires protruding from it.
Christmas markets are extremely popular in Germany and have increased security this year following the deadly truck attack at a market in downtown Berlin last December.
Previous year on December 19, suspect Anis Amri of Tunisia drove a hijacked truck through crowds of people killing 11 and injuring dozens, Deutsche Welle reported. The suspect, Anis Amri, was killed later in a shootout with police in Italy.