Both expressed hope that the new government, which took over on Wednesday from the military junta but remains dominated by the army hierarchy, would "free all political prisoners, introduce a peace and reconciliation process, and fully recognize political parties, including the National League for Democracy led by Mrs. Aung San Suu Kyi," according to a statement from Merkel's office.
Suu Kyi told Merkel she wanted to engage in dialogue with the new government.
Merkel spoke of her support for the 65-year-old leading opposition figure, who was released last year from house arrest, and for "the democratisation process" in Burma, which is also known as Myanmar.
UN Secretary General Ban Ki-moon on Wednesday called for "inclusive dialogue" on broad political and economic reforms and said the new government must answer
"the long-standing aspirations of the Burmese people for national reconciliation, democratization and respect for human rights remains."
Wednesday's government handover came after Burma's first elections in 20 years last November, which were slammed by critics as a sham to provide a civilian facade to army rule. Suu Kyi did not take part in the poll.
The European Union is to decide in April whether to continue sanctions imposed against the military in Burma.