Merkel didn't tip her hand during an interview published Wednesday in a Saxony regional daily, where the NDP has eight representatives in the state Parliament.
Merkel told the Free Press the federal government will form an independent judgment on the question of if it will join the German upper house of Parliament, the Bundesrat, in launching another attempt to ban the party.
The Bundesrat made the decision in December following an almost unanimous agreement reached by the state premiers to pursue a bid to ban the NPD.
Merkel's Cabinet has shown to be split on the issue. Interior Minister Hans-Peter Friedrich last month said the German government would join the attempt to ban the anti-immigrant party but a day later backtracked.
"By late March, the federal government will decide themselves how they will behave," she said.
As she has in the past, the German chancellor sound a note of skepticism about what such a ban would achieve.
"(An NDP ban) shouldn't give anyone the illusion that this alone would tackle the extreme right-wing enemies of democracy," she told the newspaper. "It is very important that we every day renew support for the rule of law and freedom, for courage and against bigotry and racism."
The effects of an NDP ban, Merkel said, could give relief to the eastern state of Saxony, where the neo-Nazi group is especially active, in that it would cut off federal funding to it as a political party.
"It is, of course, unbearable for the citizens here that the NPD after elections gets government money for their activities," Merkel said.
But the effort to ban the NDP, whether or not the federal government joins in, faces a tough challenge in Germany, where a similar attempt to do in 2003 was ruled unconstitutional.
In that ruling, the court said the case was flawed because informants who had infiltrated the NDP had been used as key witnesses.
Friedrich cited the precedent as well as the danger of creating sympathy for the party at a time when its support has been "going south" if another attempt to ban it fails.
At the same time, however, he said he is convinced that "we've got better evidence against the NPD than in 2003," he told Deutsche-Welle.
The German weekly Der Spiegel reported in December that federal authorities have cut ties to such government informants to help pave the way for another ban attempt at the Federal Constitutional Court.
But that hasn't completely quelled concerns by Merkel and Friedrich that another attempt would succeed in banning the party.
They remain concerned that a failed bid would only serve to embolden members of a party described by German intelligence services as "anti-Semitic, racist and xenophobic."