The paper said Tuesday that aerial photographs and documents from the United States' National Security Agency (NSA) indicate that Britain is operating a network of "electronic spy posts" just meters from the Bundestag and chancellor's office in the German capital, Berlin.
The Independent said the documents had been leaked by former NSA contractor Edward Snowden.
According to the paper, hi-tech equipment allegedly housed on the roof of the British embassy could be being used to monitor communications within the German parliament and government.
The British intelligence organization GCHQ was carrying out such spying operations in its diplomatic missions in several countries in collaboration with the US and other partners, the paper reported.
German Foreign Minister Guido Westerwelle called in British Ambassador Simon McDonald to address the allegations.
"At the instigation of Foreign Minister Westerwelle, the British ambassador was asked to come for a talk at the foreign ministry," the ministry said in a statement. "The director of the European department asked for an explanation of current reports in British media and indicated that tapping communications from a diplomatic mission would be a violation of international law."
The report comes amid growing anger in Germany over suspected US spying activities in the country, including the reported tapping of Chancellor Angela Merkel's mobile phone. Last month, Germany summoned the US ambassador to discuss the allegations.
Allegations of US surveillance in Germany and a number of other European countries have strained trans-Atlantic ties over the past few months.
On Monday, the head of Germany's BND intelligence service, Gerhard Schindler, and Hans-Georg Maassen, head of the Federal Office for the Protection of the Constitution, reportedly met their US counterparts in Washington. The talks were believed to be aimed at reaching a possible no-spying agreement between the two countries.
The Independent report follows one on Saturday by the British Guardian newspaper, saying that spy agencies across western Europe were collaborating on mass surveillance of internet and phone communications on a similar scale to that allegedly carried out by the NSA.
tj,dr/pfd (Reuters, dpa)