Twelve people were killed and almost 50 wounded when the truck tore through the crowd on Monday evening
Police were questioning a suspect, described by media as a 23-year-old man from Pakistan or Afghanistan who had arrived via the so-called Balkan route early this year and was staying at a Berlin refugee shelter.
Merkel said if it was confirmed that the man at the wheel had been part of the refugee influx to the country, this would be "particularly sickening in relation to the many, many Germans who are involved every day in helping refugees".
Twelve people were killed and almost 50 wounded when the truck tore through the crowd on Monday evening, smashing wooden stalls and crushing victims, in scenes reminiscent of July's deadly attack in the French Riviera city of Nice.
The mangled truck came to a rest with its windscreen smashed, a trail of destruction and screaming victims in its wake, with Christmas trees toppled on their side, days before the country's most important festival.
"I know it will be especially hard for us to take if it is confirmed that the person who committed this attack sought protection and asylum in Germany," said Merkel, who was later set to visit the scene.
One survivor, Australian Trisha O'Neill, recalled the horror of "this huge black truck speeding through the markets crushing so many people", with "blood and bodies everywhere".
"It wasn't an accident," said another visitor, Briton Emma Rushton, who was enjoying a glass of mulled wine when the festive scene was shattered by a loud crash and screams.
"We heard a really loud bang and saw some of the Christmas lights to our left starting to be pulled down," she told Sky news.
"Then we saw the articulated vehicle going through people and through the stalls and just pulling everything down and then everything went dark."
Police detained the man believed to have deliberately mowed the truck, which was loaded with steel beams, for 80 metres (yards) into the popular tourist spot near the capital's Kaiser Wilhelm Memorial Church.
The suspect was an asylum seeker who arrived in Germany in February, according to unnamed security sources cited by DPA news agency.
Die Welt daily named him as Navid B., born on January 1, 1993 in the Pakistani city of Turbat although other reports said he may be an Afghan.
Local newspapers reported that after the truck driver left the cabin, a man followed him on foot and used his mobile phone to stay in touch with police, who arrested him about two kilometres away near Berlin's Victory Column.
Berlin police praised the man's "civil courage".
Hours later, police commandos raided Berlin's largest refugee shelter, a hangar at the disused Nazi-era Tempelhof airport, famous because of the Cold War-era Berlin airlift, public broadcaster ZDF reported.
A Polish man, thought to have been the truck's registered driver, was found dead on the passenger seat.
The interior minister of neighbouring Brandenburg state, Karl-Heinz Schroeter, later said that a Polish national had been "shot dead", without specifying whether he was the registered driver.
The Polish owner of the lorry, Ariel Zurawski, confirmed Monday that his driver was missing, telling AFP: "We don't know what happened to him".
"He's my cousin, I've known him since I was a kid. I can vouch for him," he said.
Lukasz Wasik of the same company said contact was lost with the 37-year-old at around 3:00 pm (1400 GMT) Monday.
Wasik said GPS data indicated that the truck was later started three times -- "as if someone was practising how to drive it" -- before it drove off at 7:34 pm.
German flags flew at half-mast on Tuesday and mourners placed flowers and candles at the site.
The government declared that Christmas markets and other big events should continue because "regardless of what we may learn about the exact motives of the assailant, we must not let our free way of life to be taken from us".
Europe has been on high alert for most of 2016, with bloody jihadist attacks striking Paris and Brussels.
Germany also suffered two attacks in July in the southern state of Bavaria committed by asylum seekers and claimed by the Islamic State group.
An axe rampage by an Afghan or Pakistani man on a train wounded five people and a suicide bombing by Syrian asylum seeker left 15 people injured six days later.
The arrival of 890,000 refugees last year has polarised Germany, with critics calling the influx a serious security threat.
Marcus Pretzell of the anti-immigration Alternative for Germany party labelled the Christmas market victims "Merkel's dead".
President Francois Hollande said France was facing a "high level of threat" following the Berlin bloodshed.
The United States condemned an apparent "terrorist attack", while President-elect Donald Trump blamed "Islamist terrorists" for a "slaughter" of Christians.
Russian President Vladimir Putin said that "this crime committed against peaceful civilians shocks with its brutality and cynicism".