Dozens of police were injured when a far-right mob hurled bottles and fireworks at officers trying to ensure asylum seekers could move into a shelter in Heidenau, south of Dresden.
Merkel, who had been criticized by commentators in Germany for failing to speak out swiftly against the attacks, which began Friday night, said the images shown on television were "shocking."
"I condemn in the strongest possible terms the violent outbursts. There was an aggressive mood against foreigners there that isn't acceptable in any way," she told reporters in Berlin.
"It's repulsive how far-right extremists and neo-Nazis are spreading their hollow message, but it's equally shameful how citizens, even families with children support this by marching along," Merkel said.
Merkel's deputy visited Heidenau today to meet with refugees, town residents and local officials.
Attacks against asylum seekers in Germany have increased sharply over the past year as the country faces a growing stream of people seeking refuge from war and persecution.
Merkel said Germany would stand up for people's right to apply for asylum, irrespective of whether their requests eventually succeed.
Germany has received more than 40 per cent of all asylum applications in the 28-nation European Union this year, and Merkel called upon other countries to "live up to their commitments."
Visiting French President Francois Hollande underlined that "one country cannot manage this responsibility alone" and that it was up to Europe to find common solutions.
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