Facing pressure from the public and political rivals, German Chancellor Angela Merkel has ordered a probe into ties between the country's secret services and US intelligence agencies.
The probe was ordered after reports emerged that German intelligence services used a spying programme of America's National Security Agency (NSA) to access communication data.
The government is taking very seriously reports that the country's domestic intelligence service, the Federal Office for the Protection of the Constitution and its foreign counterpart the BND have been using the NSA's surveillance programme to snoop into and collect internet and telephone data of its citizens, a government spokesman told reporters.
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Ronald Pofalla, who coordinates the secret services in his capacity as the chancellery affairs minister, has ordered a thorough investigation into the allegations and will answer questions from lawmakers at a meeting of the parliamentary control committee on intelligence services, the spokesman said.
Documents leaked by whistle-blower Edward Snowden have revealed that NSA equipped the German agencies with "Xkeyscore", a comprehensive programme capable of tracking down suspect communications by analysing the search terms and detecting "anomalies" in internet communications.
Around 500 million German internet and telephone connections were monitored by NSA every month. In December, 2012 alone, around 180 million data was collected.
The Federal Office for the Protection of Constitution and the BND have confirmed that they closely cooperated with the NSA and used its controversial surveillance programme to monitor and collect the data of internet and telephone users.
Cooperation between the BND and the NSA was intensified in 2007 when the SPD-Green coalition government was in power in Berlin, report said.
At that time, the NSA provided the information to abort a terrorist attack planned by a home-grown radical islamist group.
Since then there are regular exchanges of analysis between the Germans and the Americans and a closer cooperation in pursing German and non-German extremists, report said quoting NSA documents.
However, the heads of the two organisations denied that personal data of German citizens in large quantities was handed over to the Americans.
Hans Georg Maassen, President of BfV German domestic intelligence agency has claimed that his organisation fully adhered to the legal limits of its cooperation with the NSA and only tested the NSA programme and was not used on a regular basis.