Mrs Merkel explained that under the current circumstances, it would be inappropriate for Germany to continue to sell weapons to their Gulf ally.
She said: “I agree with all those who say when it comes to our already limited arms exports to Saudi Arabia, that they cannot take place in the current situation.”
German Foreign Minister Heiko Maas said on Saturday that he saw “no basis for decisions in favour of arms exports to Saudi Arabia”.
In September, Germany approved to send Saudi Arabia €416million (£367million) in arms for the year.
The UK’s sale of arms to Saudi Arabia reached over £1.1billion during just the first half of 2017.
During a joint interview with Britain and France, Mrs Merkel said that she condemned the killing of Mr Khashoggi “in the strongest terms”.
Brexit Secretary Dominic Raab said that while this was a “terrible case”, Britain would not overreact.
He said: “We are not going to throw our hands in the air and terminate our relationship with Saudi Arabia, not just because of the huge number of British jobs that depend on it but also because if you exert influence over your partners you need to be able to talk to them.”
Last Friday, Saudi Arabia admitted that Mr Khashoggi did in fact die in the consulate, but claimed it had occurred during a brawl.
One Saudi official said that Mr Khashoggi was accidentally strangled when he was being restrained.
During an interview with Fox News, Saudi Arabia’s Foreign Minister Adel al-Jubeir said: “These things do happen.”
Germany and Saudi Arabia only recently reinstated their ambassadors in September after Germany criticised the Saudi government for what it viewed as the country attempting to interfere in Lebanese affairs.
This came after Saudi Arabia kidnapped Lebanese Prime Minister Saad Hariri.
While Saudi Arabia claims that Mr Khashoggi’s death was an accident, Turkish officials claim to have video an audio evidence that proves a 15-person team tortured, killed and dismembered the journalist.
Saudi officials maintain that Saudi Crown Prince Mohammad Bin Salman knew nothing of the killing.