The explosives were “relatively well hidden” in the apartment, which was raided yesterday, said Saxony police spokesman, Tom Bernhardt.
Police are still searching for the suspect, identified as 22-year-old Jaber Albakr, from Damascus.
Two people who knew Albakr have been taken into custody in the Chemnitz train station area, with a third held in Chemnitz centre. The three are being questioned.
The explosives were not considered stable enough to move and they would probably be destroyed in place once other residents in the area have been evacuated, said Bernhardt.
The apartment was raided after local authorities received a tip-off from Germany’s domestic intelligence agency that the suspect might be there, and that he was thought to be planning a bomb attack.
When police knocked down the door, however, no-one was inside.
Saxony police put out an alert, identifying the suspect and urging anyone with any information of his whereabouts to contact authorities. They released a photo of a dark-haired man wearing a hooded sweatshirt.
“We have to assume that he is dangerous,” Bernhardt said. Authorities have not said where they think the suspected attack was going to take place.
The suspect is believed to be connected to Islamic extremist groups. Bernhardt said, however, that police are still trying to determine what his motivation might be.
Authorities released no details about how long the suspect had been in Germany, and Bernhardt said it was unclear whether he had come in the wave of asylum seekers in 2015.
Germany took in 890,000 asylum seekers last year, with Syrians fleeing civil war forming the single largest group.
Neighbours reported hearing an explosion during the raid, but that was the police assault team blowing open the apartment door, said police spokeswoman Kathlen Zink.
Germany has been on edge since two attacks this summer claimed by Islamic State in which several people were injured and both assailants died.
Two other attacks unrelated to Islamic extremism, including a deadly mall shooting in Munich, have also contributed to heightened fears.