Merkel made the remarks on a press conference jointly held with European Commission President Jean-Claude Juncker.
"So far we've got a fragile ceasefire which needs to be stabilized," Merkel said.
"If the Minsk agreement is seriously violated, European leaders and the (European) Commission stand ready to prepare and impose further sanctions," she added.
The Minsk ceasefire deal, brokered by France and Germany in the capital of Belarus, envisages both sides withdrawing heavy weapons 25 to 70 km from the front line to create a buffer zone.
Under the agreement, both sides were meant to start withdrawing heavy weaponry from the battle area no later than two days after the start of a truce which came into force on February 15.