Scholz made the claim as he and opposition leader Friedrich Merz faced off in parliament for the last time ahead of the February 23rd polls.
Merz has called for Germany to turn back asylum seekers at the border but Scholz charged this would hamstring cooperation at the EU level and damage Germany in the process.
"If we claim... that security and order in Germany have got out of control and that we therefore do not need to apply European law, then other countries will use this bogus argument in exactly the same way," Scholz, of the Social Democrats (SPD), said.
"That would not only be the end of the European asylum reform, the biggest beneficiary of which is Germany... that would be the beginning of the end of the European Union as a legal community," Scholz said.
"Friedrich Merz is running to bury Europe," the chancellor added.
Scholz defended his government's record on immigration, a dominant election topic after a series of deadly attacks where asylum seekers were arrested as the suspects.
CDU leader Merz had seized on a knife attack targeting a kindergarten group in Bavaria last month to push through the Bundestag measures to limit immigration.
His conservatives passed a motion calling for a crackdown with the support of the anti-immigration Alternative for Germany (AfD), breaking a German political taboo against cooperation with the far right.
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Merz on Tuesday stressed again he would not work with the AfD in government but argued that action was needed to bring immigration under control.
"Migration needs a clear response. We tried to give it," Merz said, accusing the government, which has operated without a majority since November, of obstructionism.
The conservative leader dismissed concerns that his party's immigration policies would contravene EU law and said Scholz's charges were a "cruel irony".
"This government has been more negligent towards Europe than any before," said Merz.
The CDU/CSU whose campaign is headed by Merz has held a steady advantage and is currently polling around 29-30 percent.
Scholz's Social Democrats are drifting around 16 percent, behind the AfD, which is averaging closer to 21 percent.
READ ALSO: Scholz vs Merz - what we learned from Germany's 'pretty boring' election showdown
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