With a crucial state election in Bavaria coming up in October, Seehofer and his Christian Social Union party are anxious to stop the haemorrhage of support to the anti-migrant and Islamophobic AfD.
The chancellor's open-door policy came close to tearing her conservative movement apart and the split was only mended after Mr. Seehofer, then governor of Bavaria and the chancellor's most vocal in-house critic, agreed to join her new government in March. About 1.4 million entered the country in the wake of her decision and while the flow has slowed, around 10,000 continue to stream in each month.
Interior Minister Horst Seehofer has proposed turning back refugees who have already registered in other European countries, as part of a lengthy "master plan" on curbing unauthorized immigration.
Mrs Merkel sees that as a "go-it-alone" policy which would further hurt Italy and Greece, countries whose capacity to house migrants is stretched to breaking point.
But Angela Merkel has poured cold water on the new group's prospects, even as her own minister endorsed them. Among them are many refugees from the Syria war and other conflict zones.
Merkel opposed the measure, Mr. Seehofer, in a rare revolt by a minister against the head of the German government, on Tuesday canceled the planned presentation of his plan, declaring the measure integral to any attempt at bringing illegal immigration under control.
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Seehofer has always been harshly critical of Merkel's decision to open German borders in mid-2015 to a mass influx of over one million asylum seekers, although the government has sharply restricted entries since.
Merkel's CDU and the more conservative CSU have for decades been sister parties that form a single parliamentary faction.
The ruling coalition with the Social Democrats (SPD) has 399 seats, but without the CSU that would fall to 353 - less than a majority.
Having been weakened in the polls, Merkel had little choice but to award the ministerial to the CSU, but it is looking increasingly likely that the decision could bring about her downfall.
Since the 2015-2016 crisis the number of undocumented migrants entering the European Union has fallen sharply, largely because of an European Union deal with Turkey and new border fences in the Balkans.
Speaking alongside German Interior Minister Horst Seehofer, a Bavarian conservative who shares the Austrian chancellor's views on tightening up Europe's borders, Kurz said fighting illegal immigration would be a top priority for Vienna's presidency of the Council of the European Union in the second half of 2018.
Mr Seehofer is pushing for the creation of new "anchor centres" to hold asylum seekers until their right to stay is determined.