The Sunday Times quoted Merkel as saying in an interview that she would not support any limitations of movement within the 28-nation bloc.
“Germany will not tamper with the fundamental principles of free movement in the EU,” Merkel told the newspaper.
Cameron, who plans to hold a referendum on Britain’s EU membership if his Conservative party wins a 2015 election, has said he wants to respond to concerns among voters about immigration.
Cameron is also seeking to counter the rise in support for the anti-EU UK Independence Party, which is pushing for much lower levels of immigration in Britain.
The Sunday Times has previously reported that Cameron is considering the idea of a cap on the number of low-skilled migrants from within the EU seeking work in Britain, something which would require a major reform of the bloc’s rules.
The Sunday Times said in its latest edition that Merkel was open to talks with Cameron about possible restrictions on migrant EU workers bending the rules to claim welfare benefits inappropriately in other countries in the bloc.
“These are controversial issues that are debated also in our country,” Merkel told the newspaper. “I am of the opinion that they need to be resolved in a way that tackles abuse.
“On the other hand, we must not interfere with the fundamental principles of free movement in Europe.”A poll to be published in Britain’s Observer newspaper on Sunday showed almost one-third of voters would be prepared to back UKIP if they believed it could win in their own constituency.
The survey, conducted by polling firm Opinium, also showed Cameron’s Conservative Party eliminating a five-point deficit to the opposition Labour party over the past two weeks, with both parties now on 33 percent, and UKIP on 18 percent.(Writing by William Schomberg; Editing by Lisa Von Ahn)