"The idea of an Easter shutdown was created with the best of intentions," she said, but conceded the plan had been hasty and could not be implemented in such a short time.
"This mistake is my mistake alone," Ms Merkel said on Wednesday – only 24 hours after announcing her lockdown plan for the holiday.
The chancellor revealed the U-turn after calling a hastily arranged video conference on Wednesday with Germany's 16 state governors, who are responsible for imposing restrictions.
The same group had previously agreed the plan for deeper restrictions over Easter, announced on Tuesday, in a bid to tackle the rising number of Covid-19 infections in Germany.
Merkel says UK variant "whole new pandemic' Boris Johnson expected to speak to Merkel on vaccine exports The plan was to make Thursday and Saturday next week extra "rest days", with all shops shut on Thursday and only supermarkets allowed to open on the Saturday.
Since the Friday and Monday were already public holidays, with all shops closed, that would have created a five-day shutdown – on top of existing lockdown restrictions, recently extended until 18 April.
The plan had suffered an immediate public backlash because of potential problems for food shopping. It was also widely criticised because there had been no warning given before it emerged on Tuesday.
Ms Merkel said the decision had been taken with good intentions, in a bid to tackle the "third wave" of Covid infections, but said it was now clear the plan was impractical.
"A mistake must be called a mistake, and above all it must be corrected," said the Christian Democratic Union (CDU) leader at a press conference on Wednesday.
Controversy over new AstraZeneca trial data raises more unwanted vaccine questions "At the same time, of course, I know that this whole matter triggers more uncertainty – I regret that deeply and I apologise to all citizens," the chancellor added.
Covid infection numbers in Germany have been rising again as the more contagious variant of the virus first detected in the UK has become dominant in the country.
The country's disease control centre reported 15,815 new infection cases in the past 24 hours on Wednesday. One week ago there were 13,435 new daily cases.
Ms Merkel said that, even without the extended Easter shutdown, decisions she has agreed with the state governors offer a "framework" to beat back the new wave of infections.
Existing Covid restrictions, such as the closure of sporting facilities, will remain in place until 18 April. In-person religious services have been cancelled, family gatherings of more than two households or over five people have been banned and all non-essential shops have been shut.
A poll released on Wednesday showed support for the chancellor's party slumping to its lowest in over a year ahead of a national election in September. Ms Merkel, who has led Germany since 2005, is set to stand down before the vote.
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