Overath, the president of Bundesliga club Cologne and a member of West Germany's 1974 World Cup winning team, said FIFA should consider banning Iran due to the remarks from President Mahmoud Ahmadinejad that have sparked widespread condemnation.
"Such comments from a head of state are really grounds enough to exclude a country," Overath said in an interview on German television ahead of Friday's World Cup draw in Leipzig.
Iran is one 32 countries that have qualified for the tournament.
The Iranian president also suggested that the Holocaust might not have happened at a news conference in the Saudia Arabian city of Mecca that followed his call in October for Israel to be "wiped off the map".
In Berlin, the German Foreign Ministry said it had summoned Iran's ambassador to protest against the remarks.
'Europeans should give provinces to Zionists'
Iran's official news agency IRNA quoted Ahmadinejad as saying of the Nazi Holocaust: "Some European countries insist on saying that Hitler killed millions of innocent Jews in furnaces..."
"Although we don't accept this claim, if we suppose it is true, our question for the Europeans is: is the killing of innocent Jewish people by Hitler the reason for their support to the occupiers of Jerusalem?" he said.
"If the Europeans are honest they should give some of their provinces in Europe - like in Germany, Austria or other countries - to the Zionists and the Zionists can establish their state in Europe," he added.
Overath scored 17 goals in 81 matches for West Germany between 1963 and 1974, as well as winning the World Cup in 1974 he also played in the 1966 final which the Germans lost to England.