"We will not continue to adhere to this stubborn and misguided combustion engine ban in the European Union," Merz told a regional party conference of his Christian Democrats (CDU) in Magdeburg.
"We must remain a strong industrial location."
From today's perspective, electric mobility is still the "main road," Merz said.
Nevertheless, there will be other drive technologies such as hybrid drives or drives that people may not yet be familiar with, he added.
"We in politics do not know today what technology will be possible tomorrow."
Politically motivated bans should not lead to setbacks, according to the chancellor.
The European Union decided in 2022 that new cars would no longer be allowed to emit carbon dioxide from 2035 in an effort to meet the bloc's climate targets.
The measure effectively amounted to a ban on new petrol and diesel cars, showcasing the EU's efforts to move away from fossil fuels.
Following serious criticism from car manufacturers and some EU countries, however, the bloc announced plans to review the ban earlier this year.
Germany's ruling coalition partners - the CDU, its Bavarian sister party the CSU and the Social Democrats - are pushing for a softening of the EU decision to phase out combustion engines.
Merz has written a letter to European Commission President Ursula von der Leyen to this effect.
The regulation aims to further reduce emissions of CO2 in transport.
But because electric cars are not catching on quickly enough, pressure is mounting to reverse the decision.
Climate change is "a very serious problem that no one should dispute" and which now affects many companies as well as agriculture and forestry, Merz told the party conference.
This necessitates every possible measure to help reduce CO2 emissions - "But not with bans, not with regulation, not with dying industries but with state-of-the-art technology," the chancellor said.
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