BERLIN—Germany’s interior minister raised the stakes in his immigration showdown with Chancellor Angela Merkel, saying he was willing to resign after rejecting as insufficient a European Union plan to limit inflows.

After more than 10 hours of talks with leaders of his party, Interior Minister Horst Seehofer early Monday said he would hold a final round of talks with Ms. Merkel later in the day in an effort to resolve their disagreement, but would follow through with his resignation if those failed.

“We will conduct talks in Berlin in the hope that we can find an agreement…in the interest of this country and the stability of the coalition and the government,” Mr. Seehofer said as he left his party’s headquarters in Munich.

Mr. Seehofer’s resignation would cloud the future of the German government. Should his Christian Social Union withdraw from the coalition, Ms. Merkel’s alliance would find itself without a majority in Parliament, which would likely lead to new elections after the summer.

The chancellor’s position became more precarious on Sunday after Mr. Seehofer told CSU leaders in a closed-door meeting that the EU agreement reached on Friday wouldn’t reduce immigration to Germany, a party official said.