Merkel declared there should be an "integrated European Union military", recalling the lessons of the First World War and the divisions that led to the conflict.
Speaking to MEPs today about the future of Europe, Merkel said the continent should take its "fate fully into its own hands".
Echoing comments made by French leader Emmanuel Macron last week, she said: "We should work on a vision of one day establishing a real, true European army."
Merkel added that such an army would not undermine the US-led military alliance NATO but could be complementary to it.
It should include common development of arms industry, she said as well as an EU-wide arms export policy and crucially a "European intervention force".
It came a day after a senior minister from the French Government called for the EU to become a powerful new “empire” to rival the US and China in an interview which will infuriate Donald Trump.
Merkel's remarks today in the EU parliament drew loud applause in the legislature but also boos from euro-sceptic members.
One of them was chief Brexiteer Nigel Farage, who said: "It's a European Union that we are told is now to become an empire – a militarised European Union.
"A European Union that has launched a new Cold against the United States of America.
"One hundreds years on from the Armistice we should genuinely be worried.
"The idea that this new militarised union is somehow a recipe for peace I suggest you sit back and think a little bit more carefully.
"Maybe you should all re-read history because the European project was set up to stop German domination and what you have seen today is a naked take-over bid."
Yesterday French finance minister Bruno Le Maire said Europe must be strong enough to defend itself in the future – words the US president called "insulting."
Le Maire controversial calls for a new superstate came as he backed Macron’s and Merkel's plan for a “real European army”.
Le Maire suggested Brussels should go one even further and establish itself as an “empire”.
"It's about Europe having to become a kind of Empire, as China is. And how the US is," the French finance minister told the German newspaper Handelsblatt.
After being quizzed by the newspaper on his comments, he added: “Do not get me wrong, I'm talking about a peaceful empire that's a constitutional state.
"I use the term to raise awareness that the world of tomorrow will be about power.
Power will make a difference: technological power, economic, financial, monetary, cultural power will be crucial."
Trump has blasted Macron's idea for the European Union to build an army to protect itself from the US as "insulting".
The US President tweeted: "President Macron of France has just suggested that Europe build its own military in order to protect itself from the US, China and Russia.
"Very insulting, but perhaps Europe should first pay its fair share of NATO, which the US subsidises greatly!"
It comes three days after the French President said the US is as big a threat to the EU as Russia and China and called for a “true European army” to defend the bloc.
In an extraordinary attack on the US president, Macron lumped Washington together with Moscow and Beijing as Europe’s biggest foes.
The arch euro federalist insisted only a fully fledged EU defence force can protect the continent against the trio’s aggression.
He said: “We have to protect ourselves with respect to China, Russia and even the United States of America.
“We will not protect the Europeans unless we decide to have a true European army.”
The French president lashed Mr Trump for deciding to pull the US out of a nuclear treaty with Russia that was signed during the Cold War.
He raged: “When I see President Trump announcing that he’s quitting a major disarmament treaty which was formed after the 1980s euro-missile crisis that hit Europe, who is the main victim? Europe and its security.”
Mr Macron made the comments in a radio interview from the town of Verdun – the site of a major WW1 battle – as he tours the Western Front ahead of Remembrance Day.
They were welcomed by the EU Commission, which said it has already put the wheels in motion for the eventual creation of a euro army.
A spokesman beamed: “If there is a Commission that has put forward the need for a meaningful defence identity for the EU, it’s this Commission.
“President Macron has been consistently putting forward this narrative for a stronger Europe that empowers and protects.
“This is totally totally compatible with our work and all contributions from our EU leaders, and especially from President Macron, are very much welcome.”
But the remarks were savaged by former British Army commanders, who said the revelations showed why the UK must pull out of the EU’s defence plans.
Major General Julian Thompson, who led British forces in the Falklands, told The Sun: “The EU Commission now openly admits it has created the preamble to an EU army.
"The UK is in that preamble and risks being kept in it.
“Ministers must withdraw or risk losing forever whole chunks of the UK’s democratic control over defence.”
Colonel Richard Kemp, a commander of UK troops in Afghanistan, added: “This is precisely what eurosceptics have been warning about.
“It is time for ministers now to take notice and rein in what they have agreed since the referendum.
"They have been led astray in the most crucial area of sovereignty.”
And Tory MEP Geoffrey Van Orden, a former British Army Brigadier, raged: “Instead of 18th century dreams of French-led European grandeur, President Macron should be helping build Western solidarity.
“That means helping and not obstructing a strong partnership with Britain and strengthening the NATO alliance.”
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