Merkel said that some key services for the digital economy would require reliable transmission quality and should therefore be treated differently than other data.
At the Vodafone-hosted Digitising Europe conference in Berlin, she called for a splitting of services, "one for free internet, and the other for special services", adding that it was up to Brussels to negotiate how it would work.
"An innovation-friendly internet means that there is a guaranteed reliability for special services," she said. "These can only develop when predictable quality standards are available".
Merkel added that these special services would run over existing internet infrastructure.
Social Democratic Party (SPD) MEP Petra Kammerevert told The Local that this would make it more difficult to find a common European position on net neutrality.
"If Merkel goes into negotiations with the position she's outlined today, it will be very difficult for the European Council to find a common position," she said.
The Council, composed of the heads of state and government of all the EU member countries, must find a common negotiating position to deal with the European Parliament, which voted against a European Commission plan for regulations that would allow a two-tier internet in April.
"There is a clear position on this with a big majority in the European Parliament," Kammerevert said. "There should only be special services for closed groups of users under very strict conditions when capacity is sufficient.
"Merkel's comments are catastrophic, she's calling for a two-tier internet."
'No longer democratic'
Net neutrality campaigners in Germany say that this is another example of Merkel's party, the conservative Christian Democratic Union (CDU), working with the telecommunication lobbyists.
"This statement is taking the position of telecommunications firms. This is not the net neutrality we want, but a move towards the creation of a two-tier network where content becomes preferred based on who pays for it to make it so," said Markus Beckedahl, Berlin-based founder of netzpolitik.
His colleague, Professor Leonhard Dobusch of the Free University (Freie Universität) in Berlin, agrees.
"The revolutionary thing about the web is that the content can be decided on by anyone and, the principle of it, is that anyone can access it. But if you poke holes into net neutrality the way Chancellor Merkel suggests, then it's no longer democratic," he said.
Merkel's suggestions create a dangerous starting point for net neutrality laws in Germany, Dobusch said.
Although individual countries are still wrestling with how to come to terms with the ruling, President Obama recently attempted to follow suit in the USA by calling for new regulations under which all internet traffic would be given equal priority.
Net will 'create more jobs than lost'
Merkel, meanwhile, is effectively lobbying for a 'fast lane' for the data that requires higher level of security.
"If we want to have a driverless car or if you have specific, applications for telemedicine, then they have to have reliable and always secure connections," Merkel said.
She also said that faster connections had to be built parallel to secure ones.
"We can't talk about net neutrality if the capacity to have it isn't available," she said.
Merkel also said that digitisation was a key weapon in combating youth unemployment and declining growth in Europe.
"Far more jobs will be created than be lost as classical economies digitize. That's why it's so important that we exploit opportunities of digitisation."
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Article amended at 1740 CET on 04/12/2014 to amend a mistranslation in paragraphs 2 and 4 giving "secure" instead of "reliable".