Members of the far-right party, known by its acronym AfD, elected Alexander Gauland and Alice Weidel at their weekend party convention in Cologne.
Divisions erupted among the different factions of the German nationalists as delegates from the AfD rejected an appeal Saturday by Petry to seek a more pragmatic political path instead of turning into a "fundamental opposition" party.
Gauland, 76, is one of the party's most prominent members and considered one of Petry's main rivals. He belongs to the more far-right leaders of the party.
The delegates also voted for an election manifesto that is harsh on immigration and Muslims and reiterates calls for leaving the European Union's euro currency.
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The conference in Cologne was overshadowed by massive protests yesterday, when tens of thousands rallied against the populist party and blocked access to the hotel where the convention took place.
Today, the city remained relatively calm and police reported only a few small demonstrations.
AfD's poll ratings soared amid the influx of migrants to Germany in late 2015 and early 2016. However, they have sagged in recent months as the issue faded from headlines and the party became increasingly mired in infighting, with Petry and her husband Marcus Pretzell against other senior figures like Gauland even further on the right.
German political parties choose lead candidates for elections who generally dominate their campaigns and, in the case of bigger parties, compete to become chancellor. Petry's move has left AfD without such a figurehead.
The country holds general elections on September 24.