German had a 2.08 ERA in 21 2/3 innings and was out of options. The Rangers have 10 days to trade, release or outright the 28-year-old to the minors. German threw a career-high 3 2/3 scoreless innings in his last appearance, but he was the losing pitcher three straight times prior.
Manager Ron Washington said he needed another fresh arm for the bullpen.
"You have to make tough decisions, and this is one of 'em," Washington said before Texas played at Minnesota. "Whatever happens, we live with."
In 93 career games, Loe has started 47 times. He went 6-11 with a 5.36 ERA in 136 innings for the Rangers last season. Rookie Doug Mathis, who was roughed up in his first major league start, will remain in the rotation for now and take the mound Sunday at Cleveland.
Washington said the team preferred to keep Mathis and Josh Rupe, another right-handed reliever, on the roster rather than German.
The right-handed Mathis gave up eight hits, nine runs (six earned) and four walks without a strikeout in 2 1/3 innings on Tuesday against the Twins. Washington said he didn't pitch as badly as the statistics suggested and that he deserved another turn.
Mathis was recalled two weeks ago when Kevin Millwood, one of four starting pitchers currently on the disabled list, got hurt.