In a speech to the European Parliament, she also backed a new EU system to share the burden of accommodating the hundreds of thousands of migrants arriving on the continent, declaring that the existing "Dublin" rules had failed.
This summer's crisis has created deep divisions in the EU, and a number of eastern European member states had refused to accept a system under which asylum seekers are supposed to be spread around the bloc according to compulsory quotas.
"In the refugee crisis we must not succumb to the temptation of falling back into acting in nationalistic terms," said Merkel, standing next to French President Francois Hollande. "National solo efforts are no solution to the refugee crisis."
Under the Dublin regime, migrants are supposed to seek asylum in the first EU country they arrive in, but over the summer most have refused to register in countries such as Greece, which is in an economic crisis.
Instead they have headed overland to wealthier member states to the north, mainly Germany and Sweden, believing that life will be better there.
"Let's be honest, the Dublin procedure in its current form is obsolete in practice," Merkel said. "The bottom line is that it didn't prove to be sustainable in the face of the challenges on our borders."
"Due to that I am supporting the agreement of a new approach of a fair and joint burden sharing," she added.
Germany expects at least 800,000 asylum seekers to arrive this year. The interior ministry said on Wednesday that it had received 43,071 applications for asylum in September, a 126 percent rise compared with the same month last year.
An EU summit last month agreed to start a process of relocating Syrians and others likely to win refugee status around member states and deporting those regarded as unwanted economic migrants.
That is a demand of Germany and France but also of ex-communist states such as Hungary, the Czech Republic and Slovakia which have resisted quotas to force them to take a share of asylum-seekers but were over-ruled in a rare ministerial vote in September.
