Her speech was broadcast nationwide yesterday evening. The sudden popularity of Pegida has shocked Germany's main parties and provoked heated political debate as the country struggles to cope with a record 2014 influx of more than 200,000 asylum seekers.
The influx is set to continue well into the New Year. Last month, new hostel accommodation destined for use by asylum seekers was left damaged in a suspected arson attack near Nuremberg.
Swastikas and anti-immigration graffiti were daubed on the walls.Ms Merkel, who grew up in East Germany, took issue with the fact that many of the predominantly right-wing protesters who have attended Pegida demonstrations chant the slogan "Wir sind das Volk" (We are the people), coined by East German anti-Communist demonstrators in 1989 in the run up to the fall of the Berlin Wall.
She accused Pegida ofhijacking the slogan for its own xenophobic ends. She told viewers: "What they really mean is: you are not one of us, because of your skin colour or your religion.
"World wide there are more refugees than we have seen since the Second World War. Many literally escaped death. It goes without saying that we help them and take in people who seek refuge with us."
Pegida started out in mid-October with a demonstration in Dresden attended by about 200 supporters. In early December it attracted 15,000 supporters.
On December 22. a record 17,500 attended the movement's weekly Monday protest in the city.
There have since been rival demonstrations in Bonn, Dusseldorf, Kassel and several other towns and cities.
Its supporters fear that Germany is being overrun by Muslim immigrants who are destroying traditional Teutonic values. They want strict immigration controls, enforced "integration" for foreigners and "criminal asylum seekers" to be sent packing.
"We want to reclaim our own country" read one banner at a recent Dresden protest. "Beware Ali Baba and his 400 drug dealers" read another.
Pegida's followers range from known neo-Nazis and football hooligans to middle and lower-middle class Germans.
"The main parties won't listen to us," an unnamed middle class Dresden woman in her 60s told The Independent at a recent Pegida protest.
"If we complain about immigration the politically correct media writes us off as Nazis," she added.
The movement's self styled leader is Lutz Bachmann, 41, who once sold sausages at Dresden's famous Christmas market.
He has previously been convicted of a number of offences. He now runs an advertising agency.
Mr Bachmann argues that the German media "twists everything". So far he has refused to be interviewed or take part in any public debate about his movement's aims.
Nearly 100,000 people have "liked" the Facebook page created by Pegida. However, an anti-Pegida online petition started after the protest on 22 December, attracted more than 265,000 signatures by last night.
Prior to Ms Merkel's outspoken attack several German politicians had argued that it was necessary to listen to Pegida's concerns.
On Monday her former interior minister, the Bavarian conservative politician Hans-Peter Friedrich accused Ms Merkel of ignoring conservative issues.
He claimed the tactic had left a political vacuum on the right which was being filled by Pegida and Germany's new populist Eurosceptic Alternative for Germany (AfD) party.
The AfD openly sympathises with Pegida. The party won up to 12 per cent of the vote in state elections in east Germany in September on an anti-immigration platform.
Alexander Gauland, a leading AfD politician attacked Ms Merkel yesterday for her criticism of the movement.
"She is judging people who she does not even know, from on high," he said. Mr Gauland has described Pegida as his party's natural allies.
The Dresden sociologist Wolfgang Donsbach claims that many Pegida supporters feel that 25 years after the fall of the Berlin Wall, they have emerged as losers of German reunification.
In a regional survey Mr Donsbach held in the Dresden area, one in five people interviewed were said to have expressed racist views.
One in four were said to have claimed they felt "like a foreigner in their own country" despite Dresden having one of the lowest immigrant populations in Germany.
-The Independent
