"A third-party state will not have the same rights or even superior rights to a member state," Merkel said ahead of a Brussels summit on Brexit on Saturday.
"This may sound self-evident, but I have to say this clearly because some in Britain seem to have illusions on this point," she told the German parliament.
"That would be a waste of time."
Merkel said that talks from the very start must include Britain's financial obligations, including after Brexit.-
Also Read
The leaders of the other 27 EU nations will meet on April 29 to set down the bloc's "red lines", although the talks will not begin until June.
"The negotiations will be very demanding, without doubt," said Merkel, the leader of the biggest EU economy.
The EU has toughened its strategy, making new demands over financial services, immigration and the bills Britain must settle before ending its 44-year-old membership of the bloc.
According to the document seen by AFP, the other EU countries will seek to hold Britain liable for the bloc's costs for at least a year after it leaves in 2019 -- longer than was previously proposed.
Earlier this week, a German senior finance official pointed to some of the "tough issues" ahead, in an interview with AFP.
"What won't work is having access to the internal market without freedom of movement" for EU citizens, said Jens Spahn, state secretary at the finance ministry in Berlin.
"You can have either one thing, or the other. These things must be clarified.
Disclaimer: No Business Standard Journalist was involved in creation of this content