Herbert Reul, chairman of Merkel's CDU/CSU delegation to the parliament in Strasbourg attacked Cameron for allying himself with the anti-euro "demagogue" Alternative für Deutschland (AfD) party.
""I do not support the fact that the ECR let the AfD join their group. Until lately we have work close with the ECR with respect to economic issues," he told the Huffington Post UK.
"The fact that they now accepted a group that is politically unreliable and supports very problematic positions on a number of issues is not understandable. Herewith the ECR enters demagogue, anti-European waterways."
Cameron had told his MEPs to try and block the anti-Merkel AfD party from joining the European Conservatives and Reformists (ECR) parliamentary grouping, but they were outvoted by the group's non-British members.
The outcome of the vote could not come at a worse time for the prime minister, who is trying to persuade Merkel to drop her support for Jean-Claude Juncker as the next president of the European Commission.
In a statement, the Conservative Party expressed disappointed after being outvoted in an attempt to limit the damage. "We are very disappointed that AfD have been admitted into the ECR against our wishes," said a party spokesman.
"We note that the vote was a close one. We will work with the AfD in the European Parliament but the CDU/CSU remains our only sister party in Germany."
However, the AfD said it had been accepted by a "clear majority" and its leader, Bernd Lucke, enthusiastically welcomed the decision.
"Our successful admission is a victory against those who put huge pressure on members of the (ECR) group because they wanted to prevent, for domestic political reasons, the AfD from being recognised and strengthened," he said.
The ECR will now become the third largest group in the European Parliament, with 62 seats thanks to AfD's seven MEPs, after the European People's Party and the Socialists.