"Given the high number of infections, we assume that the restrictions which are in place before Christmas will continue to be valid until the start of January, certainly for most parts of Germany," Ms Merkel told parliament on Thursday.
She added the increase in coronavirus cases was still much too high and the number of deaths a reason for concern.
Ms Merkel said the measures will now be extended until December 20, after a videoconference agreeing the new restrictions with the leaders of Germany’s 16 regions on Wednesday.
The Chancellor’s chief of staff said rules limiting social contact might be needed for longer. "We have difficult winter months ahead of us. This will continue until March," Helge Braun told RTL television.
One major new restriction stipulates that only up to five people from two households - not including young children - can meet.
However, rules will be eased slightly over the Christmas holidays to let families and friends celebrate together. The number allowed for private gatherings will rise to 10, not counting children.
"This must not be a lonely Christmas for people in vulnerable groups," Ms Merkel said.
Ms Merkel said that existing measures have succeeded in halting an upward surge in new coronavirus infections - though they have stabilised at a high level, rather than sinking back to levels at which authorities feel contact-tracing efforts can be successful.
She noted that Germany's disease control agency, the Robert Koch Institute, reported 410 deaths linked to Covid-19, the highest single-day total yet.
"(This) reminds us in the saddest way that behind the statistics are human fates," she said.
The Robert Koch Institute also reported 18,633 new cases over the past 24 hours - compared with 17,561 a week earlier.
The government also plans around 17 billion euro (£15.1 billion) more in aid to compensate businesses hit by the shutdown, following more than 10 billion euro this month.
Berlin is also trying to come to a deal with fellow European Union countries to keep ski resorts closed until early January.
Germany, which has 83 million people, was credited as one of the better performing countries in the first phase of the pandemic.
It still has a lower death rate than several other European countries, and its current shutdown has been relatively mild.
The country has reported a total of 961,320 virus cases since the pandemic began, including 14,771 deaths.
Ms Merkel expressed hope that the arrival of the first vaccines in coming weeks would help turn the corner on the pandemic.
"A lot indicates that 2021 will bring us relief," she said.