Merkel's Christian Democratic Union (CDU) was at the receiving end of voter anger, suffering defeats in two out of three states in Sunday's elections -- including traditional stronghold Baden-Wuerttemberg.
The stinging result for the conservative CDU was accompanied by a surge in backing for the right-wing populist Alternative for Germany (AfD), which had sparked outrage by suggesting police may have to shoot at migrants to stop them entering the country.
The mass-circulation Bild newspaper described it as a "day of horror" for Merkel, as calls multiplied for her to change tack.
But her spokesman shot that down.
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"The federal government will stay its refugee policy course, fully determined, at home and abroad," the spokesman, Steffen Seibert, told a news briefing.
"The goal must be a common, sustainable European solution that leads to a tangible reduction of the number of refugees in all (EU) member states."
The German leader herself, who has consistently refused to impose a cap on refugee arrivals, was expected to give her first reaction to the polls in the early afternoon.
While they have no direct impact on her chancellorship, the regional polls in the southwestern states of Baden- Wuerttemberg and Rhineland-Palatinate as well as Saxony-Anhalt in the east served as a key test ahead of general elections in 2017.
The results could also strengthen the hand of her adversaries, including strident critics in the CDU's Bavarian sister party, the CSU.
Demanding changes, Seehofer said: "It can't be that after such an election result, the answer to the electorate is: everything will go on as before."
Merkel also risks isolation at a meeting of EU leaders opening Thursday, when they will seek to finalise a deal with Turkey on stemming the migrant influx.
The chancellor has attacked a decision by Balkan states to close their borders to refugees, but Bavarian daily Nuernberger Nachrichten noted that "she is benefiting more than anyone from the border closures that she is criticising".