Angela Merkel says the European Union should deal "seriously and conscientiously" with British demands for changes to the bloc.
But the German Chancellor stressed that fundamental principles such as the free movement of workers are not up for negotiation.
British Prime Minister David Cameron wants to renegotiate membership terms, cutting back the political powers the EU has over member countries.
He plans a referendum by the end of 2017 on whether Britain remains in the 28-nation bloc.
Ms Merkel told the German Parliament that Britain is a "natural ally" when it comes to improving Europe's competitiveness and she wants it remain "an active partner in a strong European Union".
She said Europe has succeeded before in finding "good and amicable solutions" when countries wanted to clarify their roles in the EU.