President Dmitry Medvedev said the assassin had been identified and was now the target of an international search.
Estemirova, a leading activist for the prize-winning Russian rights group Memorial, was abducted exactly one year ago in the Caucasus region of Chechnya. She was shot several times and her body was dumped in neighbouring Ingushetia.
Colleagues suspect she was killed because of her criticism of the Kremlin-appointed president of the Caucasus region Chechnya, Ramzan Kadyrov, though he has angrily denied involvement in her death.
Merkel, visiting Russia for talks on energy and the economy with Russian President Dmitry Medvedev, raised the Estemirova issue at a meeting of German and Russian business leaders also attended by Medvedev. She described it as an issue of "great importance."
"In this respect it is important to continue the work to find the truth" about the assassination, Merkel said.
Memorial's chief Oleg Orlov was earlier this month accused of libel in a criminal investigation into his allegations last year that the Kremlin-backed leader of Chechnya, Ramzan Kadyrov, was responsible for Estemirova's murder.
The controversial Kadyrov angrily dismissed the allegations and in turn has described Memorial as "enemies of the people."
President Medvedev meanwhile called on German firms to help Russia modernise its economy as he met Chancellor Merkel to further cement the Moscow-Berlin partnership.
Germany is Russia's main economic partner and enjoys close diplomatic relations with Moscow, though Merkel is considerably less cosy with Moscow than was her predecessor Gerhard Schröder.
"I very much expect that German firms, which have huge experience in this area, will take part in this work," Medvedev told business leaders after talks with Merkel in the Russian Urals city of Yekaterinburg.
Merkel for her part expressed hope that Russia will join the World Trade Organisation in the near future and that its fledgling customs union with neighbours Kazakhstan and Belarus would not hinder its WTO talks.