The claims harked back to the Cold War, said Germany's justice minister, calling for an immediate explanation from the United States of a media report that Washington bugged European Union offices in Brussels and the US.
Even closer to home, US secret services keep tabs on around half a billion German telephone calls, emails and mobile phone messages a month, the report said, in a move likely to further ratchet up transatlantic tensions.
Merkel, who discussed earlier revelations of US Internet and phone surveillance programmes with the US president on his visit to Berlin this month, was told by Barack Obama that American spies were not "rifling" through the emails of German and French citizens.
But after the latest allegations reported by German news weekly Der Spiegel, Merkel's main opposition rival in September 22 elections called Sunday on the government to clarify as quickly as possible the claims.
"If the allegations should be confirmed, that would go far beyond legitimate security interests," Peer Steinbrück told Der Spiegel's website.
"This would mean that friends and partners were spied on. That would be completely unacceptable," the Social Democrat chancellor candidate said.
Germany had already reacted to revelations of US and British spy programmes, dubbed PRISM and Tempora, with particular alarm, given its dark history of state surveillance and secret police abuses under the Nazis and the communist East German regime.
"A constitutional democracy, which works with Stasi methods, makes itself highly implausible as a moral authority," Markus Ferber, who heads Merkel's Bavaria sister CSU party in the European Parliament, told Die Welt Online on Sunday, referring to East Germany's despised secret police.
The German government has written letters to both British and US authorities demanding answers over the programmes.
Berlin said Friday that Britain's Foreign Minister William Hague had insisted in talks with his German counterpart Guido Westerwelle that London's data collection practices were fully legal.
Konstantin von Notz from the opposition Greens party demanded that Merkel immediately ensured full transparency and said the chancellor, who will seek to clinch a third term in the elections, was politically responsible "since secret service coordination lies in the chancellery".
"Further ducking behind platitudes by the chancellor is completely unacceptable," he told Spiegel Online.
Der Spiegel said its report, which detailed covert surveillance by the US National Security Agency (NSA) on EU diplomatic missions, was based on confidential documents, some of which it had been able to consult via fugitive leaker Edward Snowden.
Snowden remains holed up at a Moscow airport and is wanted on spy charges in the United States.
Der Spiegel also cited figures from secret NSA documents showing that half a billion forms of communication -- phone calls, emails, text messages and Internet chat entries -- in Germany were monitored every month.
The NSA is more active in Germany than any other EU country, it claimed.
The metadata -- showing when a communication was made and with whom -- were saved at the agency's headquarters, it said, without going into the content.
Economy Minister Philipp Rösler told the online edition of Die Welt that he assumed the aim of collecting the information was to fight terrorism but added that economic espionage was "at least one question that needs to be ruled out".
"It's beyond our imagination that our friends in the US consider the Europeans as enemies," Justice Minister Sabine Leutheusser-Schnarrenberger said in a statement.
"If the media reports are accurate, it is reminiscent of actions among enemies during the Cold War."