In the ensuing diplomatic fallout, President Barack Obama acknowledged Germany's anger and promised that new guidelines would cut back on such monitoring, except in the case of a national security interest.
"The leaders of our close friends and allies deserve to know that if I want to learn what they think about an issue, I will pick up the phone and call them rather than turning to surveillance," Obama said at the time.
Following the news of the German probe, Obama's deputy national security adviser, Ben Rhodes, said the U.S. believes direct dialogue between the two countries rather than an investigation is the best way to address Germany's concerns.
"We believe we have an open line and good communication" with Merkel and her team, Rhodes told reporters aboard Air Force One as Obama flew to Brussels for a meeting of the Group of Seven nations.
After mulling for months whether to open a formal probe, Chief Federal Prosecutor Harald Range determined "that sufficient factual evidence exists that unknown members of U.S. intelligence services spied on the mobile phone of Chancellor Angela Merkel," his office said.
In a similarly thorny diplomatic case, Germany got as far as issuing warrants for 13 unidentified CIA agents suspected of kidnapping a German terrorism suspect and taking him to a detention center in Afghanistan. The case was shelved in 2007 after the U.S. Justice Department said extraditing the agents would harm "American national interests."
In his Wednesday announcement, Range's office said he was not opening a formal investigation of wider allegations of blanket surveillance of telecommunications data in Germany by U.S. and British intelligence, saying that there was not yet sufficient factual evidence of concrete crimes. His office said that will remain under consideration.
Merkel's spokesman, Steffen Seibert, declined to comment on Range's decision or on whether the government fears it will weigh on relations with the U.S.
The government didn't exert any influence on the prosecutor, Seibert told reporters. "I am not going to evaluate here the decision he has made," he said.
Separately, the German Parliament earlier this year set up a committee to investigate the scope of spying by the NSA and other intelligence services in Germany.
It is seeking testimony from Snowden. Opposition parties want him brought to Berlin to testify, but the government argues that that would hurt trans-Atlantic relations and security cooperation with the U.S. Snowden is currently in Russia.
Geir Moulson in Berlin and Nedra Pickler aboard Air Force One contributed to this story.