The German government has obtained information that the United States may have monitored the mobile phone of Chancellor Angela Merkel and she called President Barack Obama on Wednesday to demand an immediate clarification, her spokesman said.
In a strongly worded statement, the spokesman said Merkel had told Obama that if such surveillance had taken place it would represent a "grave breach of trust" between close allies.
"She made clear that she views such practices, if proven true, as completely unacceptable and condemns them unequivocally," the statement read.
White House spokesman Jay Carney, responding to the news in Washington, said Obama had assured Merkel that the United States "is not monitoring and will not monitor" the communications of the chancellor.
When pressed on whether spying may have occurred in the past, a White House official declined to elaborate on the statement.
"I'm not in a position to comment publicly on every specific alleged intelligence activity," the official said.
The news broke as Secretary of State John Kerry, on a visit to Rome, faced fresh questions about mass spying on European allies, based on revelations from Edward Snowden, the fugitive former U.S. intelligence operative granted asylum in Russia.
French President Francois Hollande is pressing for the U.S. spying issue to be put on the agenda of a summit of European leaders starting on Thursday.
He also called Obama earlier this week after French newspaper Le Monde reported that the National Security Agency (NSA) had collected tens of thousands of French phone records in a single month between December 2012 and January 2013.
The NSA appeared to be targeting people tied to French business and politics as well as individuals suspected of links to terrorism, the paper said.
Merkel is not the only foreign leader whose personal communications may have been monitored by the United States. Last month Brazilian President Dilma Rousseff called off plans for an October state visit to Washington because of similar revelations.
On a June visit to Berlin, Obama defended U.S. anti-terrorism tactics, telling reporters at a joint news conference with Merkel that Washington was not spying on ordinary citizens.
Revelations before the trip of a covert U.S. Internet surveillance programme, code-named Prism, caused outrage in a country where memories of the eavesdropping East German Stasi secret police are still fresh.
"Trust is an important currency in political relations, and while Merkel is an extremely rational person and would probably assume Obama didn't know about this, it will create a different atmosphere between the two," said Volker Perthes of the German Institute for International and Security Affairs in Berlin.
The revelations may hamper efforts to clinch a new free trade accord between the United States and Europe by the end of next year.
Earlier this month, a second round of negotiations on the deal was cancelled because of the U.S. government shutdown. Reports the U.S. bugged EU offices have also cast a cloud over the talks.
A German official, requesting anonymity, said the government had been alerted to the latest spying activities by Der Spiegel, a weekly magazine which had obtained a U.S. document with Merkel's telephone number on it. Germany then confronted U.S. officials with the document.
"Between close friends and partners, as Germany and the U.S. have been for decades, there should not be such monitoring of the communications of a government leader," said Merkel's spokesman in the statement. "This would be a grave breach of trust. Such practices should be immediately stopped."
The White House statement said Merkel and Obama had agreed to intensify cooperation between the U.S. and German intelligence services to protect the security of both countries.
"The United States greatly values our close cooperation with Germany on a broad range of shared security challenges," Carney said. "As the President has said, the United States is reviewing the way that we gather intelligence to ensure that we properly balance the security concerns of our citizens and allies with the privacy concerns that all people share."