The German government had been given information that US intelligence was spying on the mobile phone communications of Chancellor Angela Merkel, her spokesman said on Wednesday.
"The chancellor today telephoned President Obama" and "made clear that she unequivocally disapproves of such practices, should they be confirmed, and regards them as completely unacceptable," the chancellor's spokesman Steffen Seibert said.
Seibert also said Merkel told Obama that, if such surveillance had taken place, it would represent a "grave breach of trust" between close allies.
The allegations originally surfaced in the news magazine Der Spiegel.
Responding to the news in Washington, the White House said Obama had assured Merkel that US intelligence agencies were not spying on her.
"The US is not monitoring and will not monitor communications of the chancellor," spokesman Jay Carney said. However, he did not say whether she had been spied on in the past.
Carney said President Obama was reviewing the way Washington gathers intelligence "so that we properly balance the security concerns of our citizens and allies with the privacy concerns that all people share."
German and US intelligence agencies cooperate closely on counter terrorism efforts as well as other matters related to espionage.
However, the issue of data protection is a particularly sensitive one in Germany, due in part to memories of surveillance and repression by the Stasi secret police in the former East Germany and the Gestapo under the Nazi regime.
Recent revelations of alleged US espionage, exposed by leaks from former National Security Agency (NSA) contractor Edward Snowden, have angered some of Washington's closest allies.
The allegations involving Merkel come just days after the French newspaper Le Monde published an article claiming that Washington had monitored millions of phone calls inside France.
According to Le Monde's online article published Monday, the NSA gathered 70.3 million French phone records between December 10, 2012 and January 8 of this year. The article cited documents obtained from Snowden and was co-written by Guardian journalist Glenn Greenwald, who originally broke the NSA story.
Washington has said many of Le Monde's claims were false, however Obama did speak with French President Francois Hollande in a telephone call about the claims on Monday.
On Sunday, the Mexican Foreign Ministry demanded answers from Washington after the publication of a Spiegel article alleging the US surveillance program had been spying on Mexico for years.
"This practice is unacceptable, illegitimate and contrary to Mexican law and international law," a statement issued by the Mexican Foreign Ministry said.
Last month, Brazilian President Dilma Rousseff cancelled a meeting with President Barack Obama in Washington in protest of alleged surveillance on Brazilian citizens and companies.