Cameron wants to cap immigration to Britain from the EU in a move which would go against one of the Union's building blocks.
The German chancellor told The Sunday Times she would not support Cameron's plans to introduce quotas for low-skilled EU migrants.
“Germany will not tamper with the fundamental principles of free movement in the EU,” she said.
Merkel added she would support Cameron's plans to tackle benefit abuse by EU migrants.
“I spoke to David Cameron and we agreed to assess the verdict together. These are controversial issues that are debated also in our country,” she said. “I am of the opinion that they need to be resolved in a way that tackles abuse.”
Merkel's views were echoed by her Finance Minister Wolfgang Schäuble, who told The Times on Monday that freedom of movement could not be restricted as it was one of the "basic principles" of European integration.
"That would be incompatible with the European treaties,” he said. “There is not much room to manoeuvre. The basic rules of the EU are not up for negotiation.”
Cameron is under huge pressure from politicians in his own Conservative party to deal with the rapid rise of the eurosceptic UK Independence Party (UKIP) which campaigns for Britain to leave the EU.
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