Friday's air strike in northern Kunduz province killed 54 people, according to local officials. Other sources, however, put the toll far higher.
Merkel's government has insisted those killed were Taliban militants but some witnesses spoke of scores of civilian victims, prompting searing criticism of the military action, even from NATO partners.
French Foreign Minister Bernard Kouchner has described the strike as a "big mistake" while his British counterpart David Miliband has called for an immediate investigation.
A spokesman for Merkel said the chancellor would address the Bundestag lower house on Tuesday, following calls by opposition parties for her to give lawmakers an explanation of what had happened.
Earlier, a Defence Ministry spokesman said the strike had targeted two petrol trucks that had been kidnapped by the Taliban and which the German military feared would be used for a huge attack. He insisted the attacks had been "militarily necessary and correct."
Germany only began major military deployments abroad a decade ago, breaking a postwar taboo. The anguished debate over Afghanistan comes less than three weeks before the country's general election and amid already meagre public support for the
Although pollsters say Merkel's conservatives are virtually assured of victory, they hope to ditch their current partners, the Social Democrats (SPD), and link up with the smaller, liberal Free Democratic Party. With a large part of the electorate still undecided and media coverage dominated by negative coverage of the Afghan strike, commentators said the issue could cost a few crucial points on election day September 27.
"The Afghan drama certainly deserves to play an important role in the campaign," the daily centre-left Süddeutsche Zeitung said.
Merkel's SPD challenger, Foreign Minister and Vice-Chancellor Frank-Walter Steinmeier, is unlikely to exploit the issue at the polls as his Afghanistan policy is virtually identical to the chancellor's.
Steinmeier explicitly rejected a call by former SPD chancellor Gerhard Schröder, his own political mentor, at the weekend for Germany to pull its contingent of around 4,000 troops out of Afghanistan by 2015.
"Giving a specific year (for a withdrawal) would be taken as encouragement by the wrong people," he told the Süddeutsche Zeitung.
However, opposition parties seized on the strikes as evidence of an aimless Afghanistan policy.
Much of the criticism centred on Defence Minister Franz Josef Jung of Merkel's Christian Democrats, who had insisted since Friday that there had been no civilian victims despite witness accounts to the contrary.
"Jung is damaging Germany," the left-leaning daily Frankfurter Rundschau said. "He is reacting completely inappropriately to the air strike - and to the criticism of it."
The pro-business Free Democrats said Jung had misled parliament, the socialist party The Left demanded his resignation and announced an anti-war rally in central Berlin Tuesday while the Greens party said Merkel must face parliament on the issue.
The Left is the only party of the five represented in parliament to call for an immediate withdrawal from Afghanistan.
On Sunday, Merkel said she would "deeply regret" if any civilian lives had been lost, calling for a "quick, complete and open" inquiry by NATO. Jung's spokesman appeared to backpedal slightly on the issue of collateral damage Monday, saying there was as yet "no evidence" that civilians had been among the dead. But he defended the German commander's call.
"We are standing our ground: this strike was militarily necessary and correct," said the spokesman, Thomas Raabe.
He added that Jung had spoken by telephone Sunday with the US commander of foreign troops in Afghanistan, General Stanley McChrystal, and that both had agreed it was crucial NATO forces avoid civilian casualties.