BERLIN—German Chancellor Angela Merkel reacted to her party’s latest electoral loss by sticking to her migration policy on Monday but acknowledging, more explicitly than before, that she had made mistakes along the way.

Ms. Merkel described her center-right Christian Democratic Union’s second-place performance in Sunday’s election in the city-state of Berlin as a “very unsatisfactory, disappointing” result. She acknowledged widespread public discomfort with the influx of more than a million asylum applicants to Germany this...