Investor sentiment in Germany fell sharply in August due to nagging geopolitical uncertainty clouding the outlook for Europe's top economy, a leading survey found on Tuesday.

The widely watched investor confidence index calculated by the ZEW economic institute sank 4.7 points to 25.0 points this month, the lowest level since November 2014, ZEW said in a statement.

It was the fifth monthly decline in a row, even as analysts polled by financial services company FactSet had been expecting a rebound this month to 31.5 points.

"The German economic engine is still running smoothly. However, under the current geopolitical and global economic circumstances a substantial improvement of the economic situation in Germany over the medium term is improbable," said ZEW president Clemens Fuest.

"That is why economic sentiment has declined."

For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

The sub-index measuring financial market players' view of the current economic situation in Germany improved slightly in August, ZEW said, rising 1.8 points to 65.7 points.

Economists said a relative respite in the Greek crisis had not put German investors' minds at ease.

"This month's fall in ZEW investor sentiment suggests that, despite progress in Greece's negotiations with its creditors, investors are increasingly worried about Germany's recovery," James Howat of Capital Economics said.

"The drop in the index echoes weakness in recent activity data, including industrial production and the PMI, suggesting that the German recovery will not gather much pace."