Angela Merkel has warned British politicians to rid themselves of “illusions” over the UK’s status after Brexit, as she takes a hard line ahead of negotiations.

The German Chancellor told cheering Bundestag members Britain would become a “third-party state” after its departure and could not expect to enjoy the same rights as remaining nations.

“A third-party state, and that's what Britain will be, cannot and will not have at its disposal the same rights, or be in a better position than members of the European Union,” Ms Merkel said, to loud applause.

“I have to say this clearly here because I get the feeling that some people in Britain continue to work under illusions, and that is a waste of time.”

Future trade deals, the possibility of tariffs and questions over visas and free movements are among the key issues for both sides of the negotiating table.

Speaking ahead of a Brexit summit to be held over the weekend, Ms Merkel said that discussions of the UK’s financial obligations to the EU must be addressed early.

Merkel derails May's plan for Brexit by rejecting parallel trade talks

As well as the huge cost of incorporating Brussels laws, Britain must also may a “divorce bill” expected to cost between €20bn and €60bn.

Saying negotiations would only properly start after June’s unexpected general election, Ms Merkel said the 27 remaining EU members agreed that the financial settlement must be set as a priority.

“Without progress on the many open questions of the exit, including the financial questions, it makes no sense to have parallel negotiations over the future relationship,” she added.

“We need to know how Britain sees its future relations with us.”

Theresa May has called for talks on a future trade deal with the EU to take place at the same time as divorce negotiations on Brexit, but her plans have been dashed by European leaders.

The European Parliament has also poured cold water on the Government’s claims the UK can remain in the single market and customs union.

In the letter that officially triggered Article 50, the Prime Minister said the UK wants to agree a “deep and special partnership” with remaining members of the EU to ensure economic and security cooperation.

In pictures: European parliament Brexit discussions Show all 12 1 /12 In pictures: European parliament Brexit discussions In pictures: European parliament Brexit discussions European commission member in charge of Brexit negotiations with Britain, French Michel Barnier listens at the President of the European Commission Jean-Claude Juncker speaking at the European Parliament in Strasbourg Getty Images In pictures: European parliament Brexit discussions Frank-Walter Steinmeier, President of the Federal Republic of Germany, delivers his speech at the European Parliament in Strasbourg EPA In pictures: European parliament Brexit discussions European Union's chief Brexit negotiator Guy Verhofstadt, President of the Group of the Alliance of Liberals and Democrats for Europe (ALDE), addresses the European Parliament during a debate on Brexit priorities and the upcomming talks on the UK's withdrawal from the EU Reuters In pictures: European parliament Brexit discussions Michel Barnier, European Chief Negotiator for Brexit reacts during a meeting at the European Parliament in Strasbourg EPA In pictures: European parliament Brexit discussions Member of the European Parliament and former leader of the anti-EU UK Independence Party (UKIP) Nigel Farage wears socks with Union Jack flag at the European Parliament in Strasbourg Getty Images In pictures: European parliament Brexit discussions Nigel Farage, United Kingdom Independence Party (UKIP) member and MEP, addresses the European Parliament during a debate on Brexit priorities and the upcoming talks on the UK's withdrawal from the EU Reuters In pictures: European parliament Brexit discussions European commission member in charge of Brexit negotiations with Britain, French Michel Barnier gestures during speeches at the European Parliament in Strasbourg Getty In pictures: European parliament Brexit discussions The President of the European Commission Jean-Claude Juncker (L) speaks with European commission member in charge of Brexit negotiations with Britain, French Michel Barnier at the European Parliament in Strasbourg Getty In pictures: European parliament Brexit discussions European Union's chief Brexit negotiator Guy Verhofstadt, President of the Group of the Alliance of Liberals and Democrats for Europe (ALDE), addresses the European Parliament during a debate on Brexit priorities and the upcomming talks on the UK's withdrawal from the EU Reuters In pictures: European parliament Brexit discussions Member of the European Parliament and former leader of the anti-EU UK Independence Party (UKIP) Nigel Farage gestures during speeches at the European Parliament in Strasbourg, eastern France, on April 5, 2017. The European Parliament will on April 5 lay down its "red lines" for negotiations over a Brexit deal, on which the assembly will have the final say in two years' time. / AFP PHOTO / Sebastien BozonSEBASTIEN BOZON/AFP/Getty Images Getty In pictures: European parliament Brexit discussions German president Frank-Walter Steinmeier delivers a speech during a plenary session at the European Parliament in Strasbourg Getty In pictures: European parliament Brexit discussions The European Parliament in Strasbourg, eastern France Getty Images

Ms Merkel is battling for a fourth term in Germany’s federal elections in September, where she faces competition from nationalists and the left wing.

She has vowed to protect the interests of EU citizens living in Britain, including 100,000 Germans, but also to make “a fair offer” to British citizens in Germany.

Ms Merkel said that although negotiations would take an immense effort over the next two years, the EU was ready for the challenge.

“In terms of substance and organisation, we are very well prepared,” she said.

The German Chancellor added that EU member states need to define their own “interests and goals” and will emerge from the Brussels summit with a “strong signal of unity.”

Her speech came as discussions continued over draft guidelines for their Brexit negotiators, which are to be approved at Saturday's summit.

“We are ready,” said chief EU negotiator Michel Barnier as he entered a meeting in Luxembourg on Thursday.