BERLIN— Angela Merkel’s position as German chancellor became more precarious on Sunday after her interior minister rejected a European deal on limiting immigration as insufficient, threatening her government.
In a closed-door meeting with leaders of his Christian Social Union, Horst Seehofer, who is also the party’s chairman, said the agreement wouldn’t reduce immigration to Germany, according to a party official, casting doubt over the future of the German government.
Mr. Seehofer had handed Ms. Merkel an ultimatum two weeks ago: Find a European deal that stops migrants with asylum applications in other EU countries from entering Germany or he would instruct police to start turning back such migrants at the border.
Ms. Merkel had signaled that she would see such a move, which she opposes, as insubordination.
The wide-ranging EU deal, which Ms. Merkel championed and which drew plaudits from some senior CSU politicians, had raised expectations in Germany that Ms. Merkel’s Christian Democratic Union and the CSU could bury the hatchet on Sunday as leaders of the two parties met in the afternoon to review the agreement.
But a CSU official told The Wall Street Journal that Mr. Seehofer, addressing senior party colleagues in Munich on Sunday, had labeled Friday’s deal as insufficient and not meeting the conditions he had set to postpone his proposed closure of Germany’s borders.
The EU deal involves sending most asylum seekers who attempt to reach the bloc’s shores back to transit zones in North Africa and placing the ones who make it to EU territory in closed centers in countries such as Greece and Spain.
While the deliberations continued, Mr. Seehofer’s comments appeared to steer Europe’s largest country toward a full-blown government crisis. Should Ms. Merkel fire Mr. Seehofer and end their respective parties’ seven-decade alliance, she would find her coalition without a majority in parliament.
Mr. Seehofer would make an announcement later Sunday, the CSU official said, declining to say whether the party would call off the coalition with Ms. Merkel’s CDU or whether Mr. Seehofer might resign.
Earlier Sunday, Ms. Merkel had urged her conservative Bavarian allies to back a European Union migration deal and stay in her government.
“Europe is slow and we aren’t where we want to be and we have still to work a lot…to resolve the problem,” Ms. Merkel said. “But I am in favor of holding Europe together.”
The chancellor made her remarks in an interview with German public broadcaster ZDF, following a European deal aimed at containing illegal migration by, among other things, detaining some migrants in camps.
Political analysts had said earlier they expected the German leader to survive the standoff with the CSU, but the dispute had weakened her authority to control an already fragile alliance for the remaining three years of her fourth term in office.
Such ruptures in the government are unfamiliar in Germany, where Ms. Merkel has ruled as chancellor for more than 12 years and in recent times has been the bulwark of stability as the European Union lurched from one crisis to another.
When a wave of migrants fleeing conflict and poverty in the Middle East, Africa and Asia headed to Europe in the summer of 2015, she threw open the country’s doors, and many Germans welcomed the new arrivals. But the initial mood soured amid reports of crimes associated with the newcomers and concerns that many whose asylum claims were rejected weren’t being sent back.
After the crisis peaked, Ms. Merkel moved gradually to tighten regulations for asylum seekers. But a political backlash over her policies slashed her alliance’s share of the vote in an election last year to the lowest level since 1949, and the anti-immigrant party Alternative for Germany entered parliament.
The CSU has been a fierce critic of Ms. Merkel’s decision, which resulted in more than 1 million asylum seekers entering Germany since 2015.
In a sign of her weakness, Ms. Merkel took six months to build a coalition. The pressure from the right is hardest in Bavaria, where the CSU faces regional elections in October and, opinion polls suggest, could lose its absolute majority.
In an earlier concession to the CSU, she agreed this year her new government would limit entries for humanitarian reasons to 200,000 people a year. Current figures show that 78,026 people filed asylum claims during the first five months of the year.
The CSU has said Germany should deny entry to migrants who already applied for asylum in other EU countries before moving on to Germany. Last year, about 46,000 such people entered Germany, according to the Interior Ministry.
Various CSU officials have said in recent days that the EU agreement points to the right direction and goes further than expected. But some also said additional national actions were still necessary.
Write to Andrea Thomas at andrea.thomas@wsj.com and James Marson at james.marson@wsj.com