The federal prosecutor in Karlsruhe said residential and office space were searched in Berlin on Wednesday by officers from the Federal Criminal Police (BKA), in an investigation into the work of an intelligence agent.
The Süddeutsche Zeitung reported the man worked for Germany's Ministry of Defence and spied for the US, while Welt daily said that the suspect was a German army officer.
The defence ministry in Berlin said only that "an investigation is ongoing" within the ministry.
"Federal police officers have since this morning searched the residential and office premises of an accused in the Berlin area due to preliminary suspicion of intelligence activities. No arrest has been made," the Attorney General's Office added.
The case follows the arrest last week of an employee of Germany's foreign intelligence service, the BND, who allegedly sold secret documents to the CIA. According to the Süddeutsche Zeitung, this most recent case is more serious.
If confirmed, the latest case would further strain transatlantic relations, which have taken a bruising since last year with the NSA surveillance scandal sparked by revelations of fugitive US intelligence contractor Edward Snowden.
The man had allegedly sold over 200 documents to the CIA for €25,000, including information on a German parliamentary panel that has been looking into the Snowden claims and the extent of German cooperation in US snooping.
Chancellor Angela Merkel – whose mobile phone has been tapped in the past by the US National Security Agency – has said that the double agent case, if true, would be "a clear contradiction as to what I consider to be trusting cooperation between agencies and partners".
After other German politicians and media also voiced anger, CIA chief John Brennan late on Tuesday phoned Merkel's office and discussed the case with her intelligence services coordinator Klaus-Dieter Fritsche, Spiegel Online reported.
Foreign Minister Frank-Walter Steinmeier earlier told a German newspaper that "it would be most disturbing if the spying merrily continued while we're looking at the NSA wiretapping activities and have set up a committee in
The US ambassador in Berlin, John Emerson, held further talks in the German Foreign Office on Wednesday after being called in last Friday over the spying scandal.
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