The German Chancellor also said her country "supports Israel in its issue to evaluate the material" that would prove Iran was developing a nuclear weapon before entering the deal in 2015.
"What we are doing does not violate the (2015 nuclear) agreement", he said, adding that a letter was submitted to the IAEA "yesterday regarding the start of certain activities".
But the remaining backers of the accord have limited power to protect Iran's economic interests in the face of U.S. sanctions, with Trump showing little inclination to spare European Union companies.
"This will inflame another religious war - this time a religious war inside Syria and the consequences will be many, many more refugees".
But President Trump dramatically pulled out of the agreement, leaving the remaining European signatories scrambling to save it. Secretary of State Mike Pompeo said the U.S. would re-impose its sanctions on Iran.
He called the accord (which saw Iran curbing its nuclear military program in exchange for the lifting of worldwide sanctions) deeply flawed and wanted a deal that would both limit Tehran's ballistic missile program and its increasing influence in regional affairs.
European signatories of the accord back the deal, but have concerns over Iran's ballistic missile programme and its influence in the Middle East.
In exchange, the country received relief from crippling sanctions, most of which were lifted in January 2016.
Merkel said "we sharply condemn what the Iranian leadership said", but reiterated her view that the nuclear agreement was the best way to prevent Iran from developing atomic weapons.
Israel's diplomacy with Iran has sunk to new levels, after the Israeli embassy mocked a tweet by Iranian Supreme Leader Ayatollah Ali Khamenei with a GIF from the American chick flick "Mean Girls".
Israel argues the lifting of sanctions under the nuclear deal allowed Iran to expand its presence in the Middle East, both through its own forces and with proxy groups.
But Israel argues that Iran has duped the West and plans to use the break from sanctions to build up its financial reserves before returning to its nuclear plans.
The other signatories have expressed a desire to keep the nuclear deal in place, saying it is working. We commit, and I commit again, that we will not let that happen, ' he said.