Angela Merkel reportedly blocked an early proposal from her British counterpart Theresa May to ensure EU citizens in the UK and Britons on the continent are assured of their residency rights.
The German chancellor apparently "rebuffed" the prime minister over the plan when the leaders met in Berlin on 18 November, Politico reported.
Merkel, the EU and other European leaders are refusing to start negotiations with May and her ministers until the UK triggers Article 50 of the Lisbon Treaty, the official mechanism to split from Brussels.
May has promised to formally start the talks by March 2017, but a ruling from England's High Court means MPs may have to vote on triggering Article 50.
The government is contesting the decision at the Supreme Court from 5 December, with a final ruling expected in January 2017.
Guy Verhofstadt, the EU Parliament's chief Brexit negotiator, also refused to engage in "hypothetical questions" when IBTimes UK pressed him on the residency rights issue.
But he said he was "sympathetic" to a proposal tabled in the EU Parliament to allow EU citizens who have lost their citizenship to pay a fee to get it back.
"You have to allow me, I don't start entering into these [hypothetical questions]. We want first of all to see the proposal by the British government, which will be done by the end of March when they trigger Article 50," he said.
Merkel's move is blow to the more than three million EU nationals living in the UK. But the British government has said it expects the legal status of those people to be "properly protected".
"The government recognises and values the important contribution made by EU and other non-UK citizens who work, study and live in the UK," a spokesperson said in July.
May met with Polish Prime Minister Beata Szydło in Downing Street on 28 November. The Conservative premier said she stressed that she wanted to guarantee the rights of EU citizens living in the UK "so long as the rights of British citizens living across the EU are guaranteed.
"I hope we can reach an early agreement on this issue, providing certainty for Polish citizens here and British people living in Europe," May added.