“I think she made one very catastrophic mistake and that was taking all of these illegals, you know, taking all of the people from wherever they come from,” Trump said, adding he had "great respect" for the chancellor.
Some 890,000 migrants, many of them fleeing war in Syria, entered Germany in 2015 after Merkel opened her country's doors in response to massive pressure on countries along the so-called "Balkan route" into western Europe.
The mass arrivals prompted an initial mass outpouring of support, but fear about the consequences has also driven anti-immigrant party Alternative for Germany to between 10 and 15 percent in polls.
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One MP deserted Merkel's centre-right Christian Democratic Union this weekend over her refugee policy, as the Chancellor tees up a re-election bid later this year.
While he allowed that Merkel was a "fantastic leader," the Republican said that Germany had "got a clear impression" of the consequences of her policy from a deadly December 19 terrorist attack in Berlin in which a hijacked truck was used to mow down Christmas market patrons, killing 12.
Berlin suspect Anis Amri, a Tunisian national, entered Europe via Italy in 2011 and served a four-year prison sentence there before allegedly carrying out the attack.
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Trump hails 'great' Brexit and backs speedy UK trade deal
Donald Trump also hailed Brexit as "a great thing" and backed a speedy trade agreement with Britain, in an interview with The Times newspaper.
He also forecast that other countries would follow Britain's lead in voting to leave the European Union.
“Brexit is going to end up being a great thing," Trump said of Britain's referendum vote last June to leave the European Union.
The president-elect said a trade deal with Britain would be "good for both sides".
"Absolutely, very quickly. I’m a big fan of the UK, we’re gonna work very hard to get it done quickly and done properly," said Trump, confirming he will meet British Prime Minister Theresa May soon after his inauguration on January 20.
His enthusiasm for a bilateral deal will be welcomed by the British government, which in recent months has been searching for possible trade partners following its planned departure from the EU.
Trump also said Brexit would likely be followed by others in the 28-country bloc deciding to leave.
"I think people want . . . their own identity, so if you ask me ... I believe others will leave," Trump said, following Britain's June vote to leave the EU.
The president-elect blamed the referendum result on an influx of refugees to Europe, which saw more than a million people arrive during 2015.
"If they hadn’t been forced to take in all of the refugees, so many, with all the problems that it... entails, I think that you wouldn’t have a Brexit. This was the final straw that broke the camel’s back," he said.
Trump campaigned on an anti-immigration platform during the presidential race, promising voters he would build a war on the Mexico border to stop people entering the US illegally.
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Focusing on refugees in Europe, Trump said their arrival could lead to the break-up of the EU.
"I do think keeping it (the EU) together is not gonna be as easy as a lot of people think," he said.
"And I think this, if refugees keep pouring into different parts of Europe... I think it's gonna be very hard to keep it together because people are angry about it."
Trump was interviewed for The Times by Michael Gove, a writer and MP from Britain's ruling Conservative Party who was a leading figure in the anti-EU campaign.
The president-elect has previously allied himself with another leading Brexit campaigner, Nigel Farage, the former leader of the UK Independence Party who flew to the US to support Trump during his election bid.
Farage was the first British politician to meet with Trump following the November election, a move which prompted frustration within the British government which has long since clashed with anti-establishment Farage.
Trump also argued that the mass arrivals in 2015 were "the last drop that made the barrel overflow" in convincing British voters to back leaving the European Union in a June 24 referendum.
Pro-Leave campaigners warned in the wake of the crisis that refugees would flood into the UK, producing a poster showing a crowd of Middle Eastern men under the words "Breaking Point".
"Other countries will leave" the European Union in future, Trump prophesied.
