Geert Wilders Mocks Angela Merkel at German Anti-Islam Rally

Dutch anti-Islam politician Geert Wilders gives a speech during a rally of the anti-immigration movement Patriotic Europeans Against the Islamisation of the West (PEGIDA) in Dresden April 13, 2015. Fabrizio Bensch/Reuters

DRESDEN, Germany (Reuters) - Far-right Dutch politician Geert Wilders attempted on Monday to boost the German anti-Islam movement PEGIDA with a speech that mocked Chancellor Angela Merkel for saying Muslims "belong to Germany", but the demonstration failed to draw huge crowds.

Wilders offered to take Merkel back to the Netherlands with him, provoking chants of "Merkel must go!" from the audience of mostly middle-aged and elderly white men. Some waved flags and held banners saying "Stop the Islamization of Europe!".

"Your chancellor, Frau Merkel, has said Islam belongs to Germany and I ask you, is she right? She's not right," he told the crowd in Dresden that local media estimated at about 10,000 - far short of the 30,000 PEGIDA had announced.

German attitudes to immigrants are in the spotlight since an arson attack nine days ago on an asylum seekers' shelter in the town of Troeglitz. It is suspected to be the work of neo-Nazis groups from which PEGIDA - Patriotic Europeans Against the Islamization of the West - has struggled to distance itself.

It was not the first such attack, but shocked a nation that has seen a surge in asylum seekers - 200,000 in 2014 and 85,000 in the first quarter of 2015. Foreign Minister Frank-Walter Steinmeier said the "shameful" incident risked tarnishing Germany's image.

Merkel argues Germany needs immigrants to counter a looming demographic crunch that could slash the working-age population by more than 6 million over the next decade-and-a-half.

But even some of her own Christian Democrats took issue with Merkel's remark in January, in repudiation of PEGIDA, that Islam "belongs to Germany". The comment came a day after she marched in Paris to honor the victims of an Islamist militant attack.

PEGIDA says it has no problem with law-abiding Muslims but says some want to import sharia law and Islamic State violence. Wilders said such people were wandering Europe's streets "like ticking time-bombs".

PEGIDA briefly sparked imitations across Germany and Europe but its momentum faded after co-founder Lutz Bachmann posed on Facebook with a Hitler moustache. He laughed it off as a joke.

That divided PEGIDA but Bachmann remains the figurehead and was on the podium beside Wilders, whose own political fortunes took a turn for the worse in March when his Freedom Party performed poorly in provincial elections.

Also on the podium was Tatjana Festerling, candidate for mayor of Dresden in June. She stands very little chance but the contest will be PEGIDA's first bid for elected office.

German television estimated about 3,000 people took part in a counter-demonstration against PEGIDA on Monday.