Foreign Minister Sigmar Gabriel said it was "quite unrealistic" to believe Germany would spend 2% of its economic output on the military, Censor.NET reports citing BBC.
Other spending such as development aid, he said, should be taken into account.
However, NATO chief Jens Stoltenberg echoed U.S. calls for member states to pay an equal proportion.
"Diplomacy, development aid, economic co-operation can be important to help stabilize a region," Stoltenberg told after NATO talks in Brussels.
He added that "we have a NATO agreement on moving towards 2%.
''But those are two different things... It is not either development or security, it is development and security," he said.
U.S. Secretary of State Rex Tillerson told his counterparts in Brussels that by the next NATO summit - to be held in Brussels in less than eight weeks' time - there should be a commitment to produce clear plans to demonstrate how each country would meet its spending commitments.
"As President Trump has made clear, it is no longer sustainable for the U.S. to maintain a disproportionate share of NATO's defense expenditures," he said.
According to NATO's 2016 annual report, only five countries met the 2% target - the U.S., the UK, Greece, Poland and Estonia. By contrast, Germany spent 1.2% on defense.