"Let's be frank. The Dublin process, in its current form, is obsolete," Merkel said in a joint speech to the European Parliament with French President Francois Hollande.
The process, which puts the pressure on frontline states like Italy and Greece to welcome most of the migrants, "started from good intentions, without a doubt, but the challenges raised at our borders are from now on untenable," Merkel told lawmakers in the French city of Strasbourg.
Germany is Europe's top destination for people fleeing war and misery in Europe's greatest migrant influx since World War II. Europe's richest economy expects between 800,000 and one million newcomers this year.
Numbers have surged since Germany declared it would admit Syrians, even if they technically should have applied for refugee status in the first EU country they set foot in on their way to Germany.