In the latest in a series of often heated telephone talks between the two leaders since Russia seized Ukraine's Crimean peninsula earlier this month, Merkel's office indicated that she and Putin had found a point of agreement.
"The chancellor suggested quickly expanding the OSCE's presence in Ukraine and sending a greater number of observers to the crisis zones, in particular eastern Ukraine," her spokesman Steffen Seibert said in a statement summarising the conversation.
Merkel said she hoped for a decision approving such measures by the Vienna-based OSCE tomorrow.
Seibert said Merkel and Putin had spoken "about the tense security situation in Ukraine despite their differing takes on the referendum in Crimea and the issue of territorial integrity and sovereignty".
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"The chancellor condemned yesterday's incident in the area of Kherson on the Ukrainian mainland in which Russian troops occupied a natural gas pumping station," Seibert said.
The Ukrainian foreign ministry said 80 Russian military personnel had seized a village on the Arabat Spit called Strilkove with the support of four military helicopters and three armoured personnel carriers.
Seibert said Merkel had underlined the "urgency and necessity" of direct talks between the Russian and Ukrainian governments "to resolve the outstanding problems".
A separate statement from the Kremlin said Putin told Merkel that Russia would "respect the choice of Crimea's residents" and expressed concern over tensions in Ukraine's Russian-speaking southern and southeastern regions.