Merkel's close ally, Interior Minister Thomas de Maizière, however, emerged from a closed-door grilling by a parliamentary oversight panel, denying any wrongdoing while he ran her office and oversaw intelligence matters.
"As chancellery chief of staff in 2008 I knew nothing about search terms from the US side or ... similar things for the purpose of industrial espionage in Germany," he told reporters. "No company names were mentioned."
"There is no substance to the allegations made against me," he said.
German media have accused the foreign intelligence service BND of helping the US National Security Agency (NSA) spy on targets such the Airbus Group, the French presidency and European Commission.
The key question has been to what extent the BND willingly cooperated as the NSA broadened its surveillance from potential terrorist threats to European officials and businesses -- and what the government knew.
Merkel herself pledged to face questioning by lawmakers if asked, saying in a radio interview: "I will testify and stand accountable, if necessary. I will gladly make myself available."
While popular Merkel has so far dodged the harshest criticism, de Maiziere was accused of misleading parliament over the "BND affair" when his ministry said last month it knew nothing of NSA industrial espionage.
Opposition politicians harshly disagreed with the latest comments by de Maiziere, who was last week caricatured as a liar with a Pinocchio nose in Germany's best-selling newspaper Bild.
Panel chairman Andre Hahn of the far-left Linke party called his version "unsatisfactory", saying there was evidence the BND had informed the chancellery of repeated US spy attempts that breached a bilateral security agreement.
Greens party lawmaker Hans-Christian Stroebele charged that "no attempt has been made to shut down or clear up" the US spying from Berlin, and said that "the case of Minister de Maiziere remains open".
Spying among friends
The affair has angered some of Berlin's European partners, with the government of Austria declaring it would launch legal complaints against persons unknown over the espionage claims, days after Airbus filed a similar complaint.
France was more forgiving Wednesday, with a government spokesman saying "the Franco-German friendship will overcome... this news, which has still to be confirmed ... We trust the German government."
Domestically, the scandal presents a rare threat to the broadly popular Merkel, who in 2013 famously told the US that "spying among friends just isn't on" following reports that the NSA had tapped her mobile phone.
A poll published by Bild found that 62 percent believed the BND affair had "damaged her credibility", while 42 percent said they wanted the foreign intelligence service chief Gerhard Schindler to resign.
Now facing allegations of hypocrisy, Merkel has softened her statement to say friends "shouldn't" spy on each other, while stressing the importance of US intelligence cooperation in the face of terrorist threats.
Her vice chancellor, SPD leader Sigmar Gabriel, who is expected to challenge her in 2017 elections, has thrown down the gauntlet saying she had twice told him personally that she knew nothing of US industrial espionage.
Gabriel has reportedly told party colleagues that he wants to prevent the SPD from being "dragged into this quagmire", and that the controversy must be explained by those "who have been responsible for the past 10 years".
The government has so far declined investigators' demands to hand over a list of the NSA's requested search terms for IP and email addresses and mobile phone numbers of targets, citing ongoing consultations with Washington.
For now the affair shows no sign of abating, as the small opposition has also called meetings of a parliamentary panel investigating the NSA scandal that was sparked by revelations from fugitive US intelligence contractor Edward Snowden.
While the intelligence oversight panel holds its hearings in secret in a room specially proofed against electronic bugging, most of the NSA inquest has been conducted in public.