The German Chancellor said any extension to Article 50 should be flexible enough to allow the UK's departure from the European Union "very quickly" once the UK had approved the withdrawal agreement.
Ms Merkel's comments effectively represent her backing for a plan unveiled on Tuesday night by European Council president Donald Tusk.
Mr Tusk had called for a longer extension, perhaps until March 2020 or the end of 2020, with a flexible end-date once the UK had ratified the withdrawal agreement.
Ms May had asked for an extension to June 30, but Mr Tusk said that “our experience so far, as well as the deep divisions within the House of Commons, give us little reason to believe that the ratification process can be completed by the end of June".
The 27 remaining EU leaders will decide Britain's fate at the summit in Brussels tonight, which is expected to run late. If no extension is granted, Britain risks crashing out without a deal on Friday.
The German chancellor told lawmakers in the Bundestag that a disorderly Brexit "is not in our interest".
She said of Wednesday's outcome that "it may well be a longer extension than the one the British prime minister asked for, but we will shape this extension in such a way that whenever Britain has approved the withdrawal agreement, Britain can then complete its orderly withdrawal very shortly after" with a two-year transition period.
Ms Merkel did not specify exactly how long the extension might be.
Germany is one of the EU countries more positive about an extension, along with others like Ireland and the Netherlands. France, led by Emmanuel Macron, is thought to be more sceptical.
The French president is expected to insist on certain conditions for any further delay, and possibly safeguards to prevent bad behaviour from the UK, as suggested by some Brexiteers.
Theresa May visited both Ms Merkel and Mr Macron in Berlin and Paris respectively on Tuesday, ahead of today's meeting. She appears to have been unable to convince Ms Merkel of the need for a shorter delay.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies