Germany's BND foreign intelligence agency helped the National Security Agency (NSA) carry out "political espionage" by surveilling "top officials at the French Foreign Ministry, the Elysee Palace and European Commission" the German daily paper reports.
A spokeswoman for the German federal government refused to comment when contacted by The Local on Thursday, saying only that it would answer to the parliamentary committees responsible for overseeing the spies in due course.
Long portrayed as a victim of snooping by allies, Chancellor Angela Merkel's government has grappled this week with embarrassing reports of German spying on European firms on behalf of the United States.
Thursday's revelations are likely to be the most damaging on a diplomatic level, in so far as they affect relations with one of the Federal Republic's most vital allies.
“Behind the scenes right now there will be intensive negotiations and communication between the German and French counterparts," Josef Janning, a senior policy fellow at the European Council on Foreign Relations, told The Local.
"The French will want to know exactly what was going on and they will be under pressure to get a full picture.
“In the course of these talks there may well be revelations that mid-level French members of the French intelligence services knew what was going on, but it wasn’t passed higher up.
“At a government level the political reflex will be to say we can’t allow these kind of things to develop and we need to counter this with a visible show of cooperation otherwise it will undermine German-Franco relations.
"They need to be seen as though they are acting together,” the Berlin-based policy expert said.
Citing intelligence agency documents, the Bild daily reported Monday that the German chancellor's office was informed in 2008 during Merkel's first term of German involvement in US economic espionage but did not react.
According to Süddeutsche Zeitung, spying on companies could only have taken place in isolated cases as the United States searched for "information on illegal exports."
"The heart (of the problem) is political espionage of European neighbours and institutions of the European Union," the paper claims, citing a source with knowledge of BND's procedures.
German Interior Minister Thomas de Maiziere, a trusted Merkel lieutenant who served as chief of staff at the Chancellor's Office from 2005-2009, has offered to provide an explanation next week to a parliamentary committee looking into NSA practices.
However, the opposition has already accused the government of lying for saying in writing April 14th that it knew nothing about any economic espionage by the NSA.
"I reject categorically the assertion that the government has not told the truth," Merkel spokesman Steffen Seibert said Wednesday at a regular press conference.
Germany reacted with outrage at revelations in 2013 by fugitive US intelligence leaker Edward Snowden that the NSA was conducting massive Internet and phone data sweeps, including in Germany.
The revelations, which included claims the NSA tapped Merkel's mobile phone, strained ties between Washington and Berlin.