Mrs Merkel has demanded a “complete explanation” of the claims, which are threatening to overshadow an EU summit.
She discussed the issue with US President Barack Obama on Wednesday.
President Obama told Mrs Merkel the US was not monitoring her calls and would not in future, the White House said.
However, it left open the question of whether calls had been listened to in the past.
On Monday, France summoned the US ambassador over reports in Le Monde newspaper that the US National Security Agency (NSA) had spied on millions of French phone calls. A day later, Le Monde reported that the NSA had spied on French diplomats in Washington and at the UN.
French President Francois Hollande had already called for the issue to be put on the agenda of the summit, where EU leaders are due to discuss Europe’s digital economy, economic recovery and immigration.
Other leaders are also likely to want further clarification from Washington over the activities of its NSA in Europe, says BBC Europe Editor Gavin Hewitt.
The German government has not said how it received the tip about the alleged US spying. But news magazine Der Spiegel, which has published stories based on material from former CIA contractor Edward Snowden, said the information had come from its investigations.
State-monitoring of phone calls has a particular resonance in Germany – Mrs Merkel herself grew up in East Germany, where phone-tapping was pervasive.
Her spokesman said the German leader “views such practices… as completely unacceptable” and had demanded a “complete and comprehensive explanation”.
“Among close friends and partners, as the Federal Republic of Germany and the US have been for decades, there should be no such monitoring of the communications of a head of government,” said Steffen Seibert in a statement.
White House spokesman Jay Carney said the US “is not monitoring and will not monitor the communications of the chancellor”.
He said the US was reviewing the way it gathered intelligence, to ensure that “we properly balance the security concerns of our citizens and allies with the privacy concerns that all people share”.
A number of US allies have expressed anger over the Snowden-based spying allegations.
Veteran French European Commissioner Michel Barnier told the BBC on Thursday that “enough is enough”, and that confidence in the US had been shaken.
Mr Barnier, the commissioner for internal market and services, said Europe must not be naive but develop its own strategic digital tools, such as a “European data cloud”, independent of American oversight.
Germany’s press echoed a sense of outrage, with a front-page commentary Sueddeutscher Zeitung – one of the country’s most respected papers – referring to the “biggest affront”.
German Defence Minister Thomas de Maiziere said it would not be possible to go back to business as usual. This is more than a tiff which will blow over easily, the BBC’s Stephen Evans reports from Berlin.
In July, German media carried comments by Mr Snowden suggesting the US NSA worked closely with Germany and other Western states on a “no questions asked” basis, monitoring German internet traffic, emails and phone calls.
“They [the NSA] are in bed with the Germans, just like with most other Western states,” Mr Snowden was quoted as saying by Der Spiegel – though Mrs Merkel denied any knowledge of the collaboration.
President Obama had assured Chancellor Merkel in June that German citizens were not being routinely spied upon. At the time, she was criticised by her political opponents for not being more sceptical.
A Der Spiegel report in September that the US NSA had cracked the security codes the protect data on iPhones, Blackberries and Android devices led to demonstrations in Berlin.