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VideoNazis killed six million European Jews in the Holocaust.
"The order from the Vatican is an important and good signal. It makes clear that Holocaust denial cannot be allowed to stand without consequences.
"Relations between Jewish communities and Christian churches can only succeed without Holocaust denial and without anti-Semitism," she told reporters at a news conference when asked about the issue.
"And that is what we all want -- good relations ... so I think we have made a bit of progress," said Merkel, daughter of a Protestant pastor.
Last month the pope unleashed a storm of criticism from Jewish groups and others, including bishops and commentators in his German homeland, when he decided to lift the excommunications of the four traditionalist bishops.
The most controversial is British-born Richard Williamson who says there were no gas chambers and that just 300,000 people perished in concentration camps.
Nazis killed six million European Jews in the Holocaust.
Merkel made a rare criticism of the Vatican on Tuesday, saying it was a fundamental matter if the impression arose, as the result of a Vatican decision, that the Holocaust could be denied.
The Vatican quickly issued a statement saying the pope had clearly condemned Holocaust denial in past speeches and at his general audience last week.
More in the VIDEO: Holocaust denier told to recant
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