Horst Seehofer has long been a vocal critic of Mrs Merkel's refugee policies but has now taken up a key role at the heart of her new coalition.
His comments are seen as an effort to win back voters from the far-right Alternative for Germany (AfD) party.
The chancellor was quick to distance herself from the remarks.
In his interview with the mass-circulation Bild newspaper, Mr Seehofer said Germany had been "shaped by Christianity", and that the country should not give up its own traditions.
"No. Islam does not belong to Germany. Germany is shaped by Christianity," he said.
"The Muslims who live among us naturally belong to Germany... That of course does not mean that we should, out of a false consideration for others, give up our traditions and customs.
"Muslims need to live with us, not next to us or against us." [BBC] Read more
