The population was "81.8 to 81.7 million at the end of 2009," the Federal Statistics Office said, compared to 82.0 million in 2008. The number of births also dropped.
Germany has one of the lowest birth rates in Europe - 1.4 children per woman - and data released in November suggested that at current rates, the country's population could shrink by up to 17 million in the next 50 years.
Prof. Ralf E. Ulrich, a demographics specialist at the University of Bielefeld, said the figures were a wake up call for Germany to start a societal and political discussion about making the country more attractive to immigrants. He said the alternative would be forcing people to work much longer than they do now and slashing Germany's pension benefits.
Like other advanced economies, Germany is facing a snowballing population crisis, leaving the country short of workers and adding to the strain on already stretched public coffers.
In an effort to turn the tide, Merkel has launched a host of initiatives to encourage Germans to have bigger families, including creating more creche places and offering generous parental leave policies.