Statistics compiled by Germany's Economics Ministry show that military exports to the Gulf Cooperation Council -- Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain -- went up to $1.22 billion from $752.6 million a year earlier.
Military equipment was also sold to Algeria, with more deals being negotiated.
German opposition parties have angrily criticized the conservative-led coalition government's easing of restrictions because of concerns these weapons could be used by the absolute monarchies in the gulf to crush dissent amid the pro-democracy uprisings sweeping the Arab world.
Saudi Arabia, the world's leading exporter and the largest of the Sunni Muslim monarchies, is particularly concerned about growing protests by the restive Shiite minority in the kingdom's main oil producing region.
Over the last two years, Bahrain crushed a largely Shiite protest movement with the help of Saudi security forces; the United Arab Emirates has 94 alleged activists on trial on charges of plotting against the state; and Kuwait is grappling with protesters seeking to limit royal powers.
"The worst human rights violations are apparently no longer a reason to deny the approval of arms exports," said Jan van Aken, defense spokesman for the German opposition Left Party.
In large part, Germany's self-imposed ban on armed sales to regions in conflict, like the Middle East, or to autocratic regimes with poor human rights records was a relic of Germany's Nazi past and horrors of World War II.
However, because of the Holocaust, successive German governments have been key arms suppliers to Israel to ensure its security.
One of the reasons Merkel's coalition, like its immediate predecessor, moved toward a more aggressive arms sales policy is Europe's economic woes.
Germany's defense industry, one of the world's largest, has been hard hit by massive cuts in military spending that have made them increasingly dependent on export sales.
The seminal shift in German policy occurred June 27, 2011, when Merkel and Germany's Federal Security Council, which meets in secret, approved the sale to Riyadh of 200 Leopard 2A7+, Germany's most advanced tank built by Rheinmetall and Krauss-Maffei Wegmann.
This was at the height of the so-called Arab Spring that toppled dictatorships in Tunisia, Egypt, Yemen and Libya.
Der Spiegel, the German newsmagazine, reported that was the first time Berlin decided to supply "heavy arms to an Arab government that has declared its intentions to fight to fight its opponents 'with an iron fist,' a country that deployed tanks against demonstrators" in Bahrain.
Since then, the number of Leopards Riyadh wants has risen to 600 and the Germans are trying to sell the Saudis several hundred Boxer armored personnel carrier, also manufactured by Rheinmetall-KMG.
On top of that, Berlin's reported to be planning to sell Egypt two Type-209 subs, a deal worth at least $1.5 billion if it goes through. The subs are built by Howaldswerke-Deutsche Werft AG of Kiel.
That sale would give Egypt's navy a major boost but the German negotiations have angered Israel, which has bought three Dolphin class Type-209 subs and is acquiring three more advanced variants.
Meantime, Egypt's gripped again by political protests against the new president, Mohammed Morsi of the Muslim Brotherhood who's showing dictatorial tendencies.
That's fueled German opposition to Merkel's arms export strategy.
The proposed Boxer sale has run into trouble because the vehicles are being sought by Saudi Arabia's National Guard, whose primary mission is protecting the ruling House of Saud.
"There is the possibility of German armored vehicles being used against the masses," Der Spiegel observed.
Merkel's coalition is also negotiating with Algeria, North Africa's military heavyweight. Rheinmetall wants to produce up to 1,200 Fuchs APCs in Algeria.
Berlin has also underwritten a $2.8 billion deal with Algiers for two warships. The gulf emirate of Qatar is mulling the purchase of 200 Leopards for $2.5 billion.