"These deep differences of opinion relate to basic questions of democracy and the rule of law. They relate to freedom of expression in Turkey. They also relate to the many journalists that have been jailed for expressing their opinion," Merkel said in an address to the German parliament, ahead of a European Council leaders' meeting later in the day.
In the speech, Merkel also reiterated her strong objections to Turkish President Recep Tayyip Erdogan's weekend comment
that Germany's Nazi past might not be entirely behind it.
"This is completely out of hand and why it's almost impossible to comment on this. It cannot be justified," she said.
"SS comparisons only lead to misery because it means the crimes committed by the National Socialists in Germany are rendered much more harmless than they actually were."
Such comparisons must stop, she said, adding that they "are not good for the close ties between Germany and Turkey."
And while Germany must speak up for freedom and democracy, Merkel said, it must not let Turkey -- an important ally in European efforts to handle the current migration crisis and combat Islamist extremism -- distance itself.
"As difficult as all of this might be, our geopolitical interest cannot be that Turkey -- which is after all a NATO partner -- continues to distance itself from us," Merkel said.
"That is why it is well worth it to stand for the German-Turkish relationships -- but on the basis of our values, our perceptions and in all transparency."
Turkish rallies canceled
Erdogan lashed out over the weekend after rallies in the German city of Cologne and the town of Gaggenau in support of his government were canceled due to concerns about overcrowding.
In a video on Anadolu
, the Turkish state news agency, Erdogan said: "I thought that Nazism was over in Germany, but it turns out that it is still going on. It is still going on, it is clear."
The rallies, at which Turkish government ministers were due to speak, were being held to drum up support for the upcoming referendum vote on the Turkish constitution on April 16.
The sweeping constitutional changes, introduced by Erdogan's ruling Justice and Development Party (AKP), would grant new powers to the President and transform the way the country is governed.
The world's largest Turkish diaspora is found in Germany, where about 3 million people with Turkish ethnicity reside.
In her speech, Merkel praised the contribution of that Turkish community to Germany and appealed for everyone to work together. She added that future appearances by Turkish representatives could be possible if they were properly arranged.
Relations between the two countries have been increasingly strained since Erdogan cracked down on government critics in the aftermath of an attempted coup last July.
Last Monday, a Turkish court arrested Deniz Yucel
, a correspondent with the German newspaper Die Welt, on charges of terror propaganda and inciting hatred and enmity.
Merkel: 'Many things are changing'
Merkel also spoke Thursday of the need for solidarity in Europe as it faces its current challenges, including migration, the threat of international terrorism, Britain's impending exit from the union and the change of US administration.
"Many things are changing in the world, including the character of the transatlantic relationship," she said.
Nonetheless, she said, that partnership, based on shared values and interests, "is extremely important for all of us, not only for us Europeans, and it is in this spirit that I'm going to have my conversations with Donald Trump in Washington in the weeks to come."
EU nations will have to take on more responsibility for defense and handling issues in their own backyard, Merkel said, including in the Balkans.
And she said Brexit should be seen as a "wake up call" for the other 27 EU states, which should work together to improve and strengthen what she described as a very successful union.