"Our hand is still stretched out ... but the continued defiance towards the IAEA, to UN resolutions and Iran's dangerous policies in general oblige the international community to take the path in New York towards further sanctions against the regime in Tehran," Merkel's spokesman said. "The German government is rigorously taking part in this process."
The comments followed the leaking on Thursday of a report from the International Atomic Energy Agency, the UN atomic watchdog, expressing concern that Iran might have been trying to develop a nuclear warhead. Merkel's spokesman said the report confirmed Germany's "great concerns."
US President Barack Obama's spokesman said Thursday it continued "to demonstrate the failure of the Iranian government to live up to its international obligations."
Iran's supreme leader Ayatollah Ali Khamenei said on Friday that Iran does not believe in and is not seeking an atomic weapon, state television reported, calling Western allegations "nonsensical." Tehran insists its nuclear activities are for peaceful purposes.
Germany's top two insurers meanwhile, Munich Re and Allianz, on Friday became the latest German firms to announce they pulling out of Iran, both citing what they called the "political situation" there.
For Munich Re, a firm generating close to €40 billion($54 billion) in premiums each year, the loss of an estimated €10 million is small, and an Allianz spokeswoman told AFP that the amount of business it does in Iran was negligible.
But the moves, which followed a similar announcement German engineering giant Siemens last month, have a high symbolic importance since Germany's partners have been pressuring it to put its money where its mouth is and cut its still sizeable business ties with Iran.
Germany, which recently lost its crown to China as the world's top exporter, exported almost €4 billion worth of goods to Iran in 2008, mainly machine tools and industrial equipment, a rise of nearly nine percent.
In the 11 months to November 2009, the latest figures available, exports fell nine percent, a spokesman told AFP last month, but this was less than the 19-percent recession-fuelled slump that Germany recorded overall.
Merkel said in January that German-Iranian trade had "declined considerably" while acknowledging that the two countries had a "long tradition of economic cooperation."
At the same time Germany is one of six countries negotiating with Tehran over its nuclear programme, along with permanent UN Security Council members the United States, China, Russia, Britain and France.
Berlin has already reduced to a trickle the special export guarantees crucial to companies trading with Iran.
In addition, according to press reports, the German government is applying pressure on chambers of commerce not to organise seminars on Iran or business trips there.