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The decision was announced after ministers held a crisis coronavirus summit in Berlin.
The measures will come into force on Wednesday and be in place over the Christmas and New Year holidays.
Ms Merkel told a press conference: “We are forced to act – and are acting now.”
The Chancellor announced the new measures a day after anti-lockdown protestors clashed with police in the city of Dresden.
We are forced to act – and are acting now
The lockdown will see most shops closed until January 10. Only essential shops such as supermarkets and pharmacies, as well as banks, will be allowed to stay open.
Schools will also be closed and employers are being told to suspend operations or arrange for staff to work from home.
The sale of fireworks will be banned ahead of New Year’s Eve.
Germany has been in partial lockdown for six weeks, with bars and restaurants closed, while stores and schools have remained open.
Some regions have already imposed tougher measures as infections grew.
New daily infections and deaths have reached records in recent days, and more politicians have been sounding the alarm.
The number of confirmed coronavirus cases in Germany increased by 20,200 to 1,320,716, according to data from the Robert Koch Institute (RKI) for infectious diseases.
The reported death toll rose by 321 to 21,787.
BREAKING NEWS. MORE FOLLOWS…
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