Horst Seehofer told reporters at an event in the eastern city of Bautzen that rumors he was resigning as interior minister were incorrect.
"I am the federal interior minister and I continue to serve in that office," the 69-year-old said.
Seehofer has clashed frequently with Merkel, primarily over her policies on migration. The friction between the two threatened to bring down the chancellor's coalition government earlier this year over his insistence that some categories of asylum-seekers should be turned away at the country's borders.
More recently, Seehofer's backing of domestic intelligence chief Hans-Georg Maassen over comments he made downplaying the extent of violence in anti-migrant protests in the eastern city of Chemnitz put him at odds again with Merkel as well as with other cabinet ministers.
Merkel's junior coalition partner Social Democrats had demanded Maassen's removal from the BfV spy agency in September after the comments.
Maassen was removed, and on Monday the ministry confirmed it was replacing him with longtime civil servant Thomas Haldenwang.
Despite staying on as interior minister, Seehofer confirmed that he had decided to step down from the Christian Social Union, which operates only in Bavaria as the partner of Merkel's Christian Democratic Union.
"Change is a part of life," he said, adding he'd announce specifics on timing later in the week.
Seehofer stepped down as Bavarian governor earlier this year in favor of a younger rival, Markus Soeder, but clung to the post of CSU leader until the party's dismal result in September's regional elections increased the pressure for him to leave.
