"I'm not saying you're a Nazi, a fascist. I am explaining the incident… This incident is Nazism. This is fascism," Erdogan said, reacting to comments made by Merkel and Martin Schulz, her Social Democratic rival, during a televised debate ahead of elections on September 24th.
"You have entered into the election campaign in a competition for this title," he told local ruling Justice and Development Party (AKP) officials in Ankara.
Relations between Turkey and Germany have been tense since last year's attempted coup and Berlin's reaction to the subsequent crackdown during which over 50,000 people have been arrested including German citizens.
Ties were further strained by last week's arrest of two German citizens, one of whom has since been released according to her lawyer.
It is not the first time Erdogan has used the Nazi comparison. In the run up to an April referendum to boost his powers, he accused Berlin of "Nazi practices" after the cancellation of rallies to drum up support from Turkish voters in Germany.
In the TV showdown with challenger Schulz on Sunday, Merkel said it was "clear that Turkey should not become a member of the European Union".
And Merkel told parliament on Tuesday that she would discuss with EU partners at the next summit in October whether to "suspend or end" Ankara's long-stalled accession talks to the club.
"I tell Merkel: if you cannot tolerate the EU's relationship with Turkey, bravely say it and do what's necessary!" Erdogan said.
He repeated his call for ethnic Turks in Germany not to "give your vote to Turkey enemies," which last month infuriated German politicians.
Erdogan called the EU's stance towards Ankara's accession bid "hypocrisy and political immorality," and urged Brussels to make a clear decision "at once" on the process.
"We didn't have any problem with the EU. You've kept Turkey waiting. Turkey has complied with all its commitments. It's the EU that should take a step.
"They must either keep their word... or come out and say 'we don't want to continue on this path'."
Erdogan insisted that Turkey had not moved away from its "strategic goal of EU membership" and was fulfilling its duties.