"We will do everything to prevent further victims perishing in the most agonising way on our doorstep in the Mediterranean which isn't compatible with our values," Merkel told a meeting with non-government organisations in Berlin.
"We must and will do everything to stop traffickers," she added.
Earlier her spokesman said Merkel, "like millions of Germans", was "appalled" by Sunday's capsizing of a fishing boat off Libya in which more than 700 people are feared dead, a few days after hundreds died in another incident.
The victims had "started out — desperate, perhaps also hopeful – for Europe, and the fact they now have only found death on the way, that is a tragedy," Steffen Seibert told reporters.
"That this is taking place with sad regularity in the Mediterranean, that is a situation not worthy of Europe. A continent which feels committed to humanity must look for answers even when there are no easy answers," he added.
EU interior and foreign ministers gathered in Luxembourg to discuss their response to the worsening crisis.
European politicians must urgently ask what can and must be done to prevent a repetition of such disasters at sea, Seibert said.
But he added they must also examine how "the complicated internal political situation in Libya leaves people smugglers a completely free path for their criminal business".
He said Merkel had called Italian Prime Minister Matteo Renzi on Sunday and the two agreed that Europe "is to now act in this direction".
Voices from across the German political spectrum had agreed on Sunday that a new answer was needed to the refugee crisis in the Mediterranean Sea, after news that the fresh catastrophe had cost 950 lives.
“We have to try and bring more stability to Libya… only that way can we stop Libya from continuing to be used by people smugglers and organizations,” Foreign Minister Frank-Walter Steinmeier told ARD television.
“We have to stop the work of the people-smuggling gangs. That can only be done in international co-operation,” he added.
Fellow Social Democratic Party (SPD) member and vice-Chancellor Sigmar Gabriel said that “we can no longer allow that Europe all too often brings death rather than humaneness on its external borders.”
But Christian Democratic Union (CDU) Interior Minister Thomas de Maizière said that there were “no simple answers” because “criminal people-smuggling gangs earn a lot of money with the trips to and across the Mediterranean.”
Harald Höppner, a guest on political talk show Günther Jauch who plans to head to the Mediterranean and save refugees in a converted fishing boat called "Sea Watch," surprised other guests by calling for a minute of silence during the Sunday evening broadcast.
The German voices joined a chorus from across Europe calling for something to change in the EU's border security policy.
“How many more times do we want to express our dismay and then go back to the [normal] order of the day?” asked European Parliament president Martin Schulz, adding that the next tragedy would be only a matter of time unless something changed.
SPD human rights spokesman and MP Frank Schwabe said that “whoever doesn't act now is guilty of failing to help.
“Anyone familiar with the figures knows that a successor mission to 'Mare Nostrum' [an Italian sea rescue programme in the Mediterranean ended in October 2014] wouldn't be an encouragement to refugees, but a necessary humane act.”
Mare Nostrum was brought to an end as increasing numbers of refugees from the Middle East and North Africa arrived in Italy, with other European countries reluctant to take on a share of the burden.
It was estimated to have saved around 140,000 lives according to a 2014 study by the European Council on Refugees and Exiles.