Syrian Observatory for Human Rights head Rami Abdel Rahman said the woman in her 20s was "killed in the past few hours" in a battle since Saturday for the Kurdish-held town of Tal Tamr in Hasakeh province.
The German, whose name was not immediately available, would be the third Westerner killed among Kurdish ranks in Syria.
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Briton Konstandinos Erik Scurfield and Australian Ashley Johnston both died in clashes elsewhere in Hasakeh.
At least 40 Kurdish fighters and IS jihadists have been killed in the Tal Tamr battle, the Observatory said earlier on Sunday.
News of the German woman's death, which was not immediately confirmed by Berlin, came on International Women's Day.
Women account for around 35 percent of the fighting force of the Kurdish People's Protection Units (YPG), numbering around 7,000, and they receive the same training as their male comrades.