The deputy chairman of Free Democrats (FDP) accused the diplomat of repeatedly trying to interfere with German political sovereignty.
Grenell has also repeatedly threatened German companies that do not adhere to US sanctions against Iran.
His misstep on Friday began with a Newsweek magazine summary of an interview with Merkel , a summary that incorrectly implies that the chancellor "lumped in" the US "as a global rival that, along with China and Russia, "Europe must unite against."
However, in the interview that Newsweek is quoting, which is from the German daily Süddeutsche Zeitung, it is the interviewer and not Merkel who places Washington alongside Moscow and Beijing, asking how Europe is approaching the "global challenges from China and Russia, as well as the USA."
Merkel responds by saying that these global challenges "are forcing us, time and time again, to find common positions." She went on to say that the EU does not always manage to do this as well as she would like, arguing that the bloc's "political power" still does not match its economic clout. She never mentions the implication of the three countries being equivalent, an idea that even the questioner's original German avoids.
'Merkel said what exactly?'
Newsweek's headline was then tweeted, without context or attribution, by New York University political scientist Ian Bremmer, where it was picked up by Grenell.
Among others, the chairman of the Munich Security Conference, Wolfgang Ischinger, spotted the mistake, responding to Grenell by asking: "Merkel said what exactly, and when, and in which language?"
Unusually for a diplomat, Grenell generally speaks English when appearing on German media.
Grenell has previously upset the German public and politicians alike by saying in a Fox News interview that Chancellor Merkel's refugee policy "fell apart" and unfavorably comparing her administration to the far-right government in Austria. He was also criticized by the former leader of the Social Democrats (SPD), Martin Schulz, for his perceived overreach as a foreign diplomat.