The diplomatic spat began when the Netherlands cancelled a Turkish rally in Rotterdam in support of expanding the powers of President Recep Tayyip Erdogan - leading him to brand the Dutch "Nazi remnants" and "fascists".
President Erdogan made the inflammatory comments after permission for his foreign minister's plane to land in the Netherlands was withdrawn, and just hours later the country's families minister was blocked from entering the Turkish consulate in Rotterdam.
Speaking on Monday, Ms Merkel pledged her "full support and solidarity" to the Dutch, saying Nazi jibes were "completely unacceptable".
"Shame on you!" Mr Erdogan responded in anger during a news conference in which he again likened the Dutch to "Nazis".
The 63-year-old renewed accusations Germany supported "terrorists" battling Turkey and that it backed the "no" campaign in the Turkish referendum, arguing that Berlin did not want to see a strong Turkey emerge.
"Some of the European Union countries - let's not put all of them in the same sack - unfortunately cannot stomach Turkey's rise," he said.
"Sadly, Germany tops the list. Germany supports terror in a cruel way."
He advised Turks living in Europe not to vote for parties he described as "enemies of Turkey".
On Monday, Mr Erdogan said that two cabinet ministers would apply to the European human rights court over their treatment in the Netherlands, even though he did not think the court would rule in Turkey's failure.
Later Turkey announced it was halting all high-level political discussions with the Netherlands, and that it had closed its air space to Dutch diplomats until the Netherlands meets Turkish requests.
It added that the Dutch ambassador to Turkey - who is currently out of the country - could not return, and it would advise parliament to withdraw from the Dutch-Turkish friendship group.
The EU has responded to Turkey, calling on it to "refrain from excessive statements and actions that risk further exacerbating the situation", adding it was essential to avoid escalation and to find ways to calm the situation.
The call was echoed by Nato Secretary General Jens Stoltenberg called for all members "to show mutual respect, to be calm and have a measured approach".
However, President Erdogan's strong reaction to the events of the past few days has fuelled nationalism in Turkey and bolstered his image as a protector of the Turkish people against a hostile world.
Turkey had a similar dispute with Germany last week, but the fight with the Netherlands comes as the Dutch prepare for an election on Wednesday pitting Prime Minister Mark Rutte's right-wing PVV Party against far-right, anti-Islam populist Geert Wilders' party.
Mr Wilders had called on the Dutch government to bar Turkish ministers from the Netherlands until after the election.
The Netherlands has issued a travel advisory to their citizens to "be alert and avoid gatherings and busy places throughout Turkey".
Turkey is a candidate to join the EU, although the membership negotiations have made little progress over the past decade.
However, the country has become a vital partner in a deal with the EU to curb the passage of migrants and refugees from Turkey into Europe.
Yet in the latest stages of the diplomatic row, Turkey's Deputy Prime Minister Numan Kurtulmus said Europe had not kept its promise on the migrant deal and for that the agreement has ended, adding that if necessary the country would take steps and re-evaluate the migrant issue.