According to a Downing Street source, Ms Merkel told the PM that a deal was now “overwhelmingly unlikely” and that the UK could not leave the European Union without Northern Ireland remaining in an EU customs union forever.
The bloc’s position means an agreement is “essentially impossible”, the source added.
Mr Johnson has insisted his blueprint to resolve the controversial issue of the Northern Ireland backstop represents a “fair and reasonable compromise”.
The developments come with just 23 days to go before the United Kingdom is due to leave the EU.
The EU’s main concern is an aspect of the so-called “Ireland protocol” that commits both sides to never introducing checks on the Irish border.
The EU would see it as an unacceptable loss of control if the Stormont Assembly is given a veto and there were no guarantees over what checks the UK would carry out on goods going to Ireland.
A No 10 source said: “If this represents a new established position, then it means a deal is essentially impossible not just now but ever. It also made clear that they are willing to torpedo the Good Friday Agreement.”
‘We’re not bluffing’
The latest developments follow a report that appeared in The Spectator magazine outlining the Government’s current strategy.
In it, a Number 10 source is quoted as saying there are “all sorts of things” the Downing Street could do to scupper a delay.
The source blamed Irish Premier Leo Varadkar for refusing to negotiate, and warned that if Mr Johnson’s plan “dies” in the next few days it would not be revived.
And the source blamed Parliament for passing a law that aims to stop Johnson taking the UK out of the bloc without a deal, for the EU’s refusal to move on the Irish border question, which has stalled talks for more than a year.
As a result, Irish PM Varadkar had decided not to make concessions on the border, the source said.
It was suggested that the main way Johnson could try to avoid delaying Brexit would be to try to get an EU country to veto a delay, and that the UK would offer rewards to any country opposing an extension to negotiations.
But the source warned that EU countries that support a Brexit delay at a Brussels summit later this week "will be seen by this government as hostile interference in domestic politics".
As a result, the UK will warn Brussels both privately and publicly that countries which oppose a delay will “go the front of the queue for future co-operation – co-operation on things both within and outside EU competences... Those who support delay will go to the bottom of the queue.”
French President Emmanuel Macron has said that the workings of a deal need to be in place by Friday if there is to be an agreement at the EU summit next week in Brussels.
What has been the reaction to the report?
Labour's shadow Brexit secretary Sir Keir Starmer attacked "yet another cynical attempt by Number 10 to sabotage the negotiations".
He said: "Boris Johnson will never take responsibility for his own failure to put forward a credible deal.
This is yet another cynical attempt by Number 10 to sabotage the negotiations.
Boris Johnson will never take responsibility for his own failure to put forward a credible deal. His strategy from day one has been for a no deal Brexit. https://t.co/9BSwFIWsjs
— Keir Starmer (@Keir_Starmer) October 8, 2019
"His strategy from day one has been for a no-deal Brexit.
"It is now more important than ever that parliament unites to prevent this reckless government crashing us out of the EU at the end of the month."
.@BorisJohnson, what’s at stake is not winning some stupid blame game. At stake is the future of Europe and the UK as well as the security and interests of our people. You don’t want a deal, you don’t want an extension, you don’t want to revoke, quo vadis?
— Donald Tusk (@eucopresident) October 8, 2019
Donald Tusk, president of the European Council, tweeted to Mr Johnson: "What's at stake is not winning some stupid blame game. At stake is the future of Europe and the UK as well as the security and interests of our people."
The DUP responded to the suggestion that Northern Ireland stay in a customs union as "beyond crazy".
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In a statement released, the party said that "no UK government could ever concede such a surrender... The EU is not interested in a negotiated outcome at this time.”
The UK government’s attempt to shift the blame for the Brexit fiasco to anyone but themselves - today it’s Merkel - is pathetically transparent.
— Nicola Sturgeon (@NicolaSturgeon) October 8, 2019
What happens next?
Judging from the report, the Prime Minister could be exploring options including a clear no-deal strategy, after speaking to Merkel to discuss his Brexit proposals.
If the UK gives up on talks, Mr Johnson is likely to call an election to deliver a no-deal Brexit in late November or early December, according to The Guardian.
Labour said it would agree to an election only after the PM has secured a three-month extension to Article 50, ruling out a no-deal Brexit on 31 October.
The Prime Minister and his government could be forced, potentially through the courts, to request and accept a delay if a no-deal Brexit on 31 October is not possible.
The EU summit, the last scheduled summit before the UK’s scheduled departure, takes place on the 17 and 18 October.
Mr Johnson could snub a make-or-break EU summit unless significant progress is made on a new Brexit deal by the end of the week, according to Politics Home.
The PM has said that he will negotiate a new agreement at the meeting of European leaders but with hopes of a deal fading, he may not even turn up at the Brussels gathering, the website speculated.