Angela Merkel’s spokesman has reiterated her rejection of British plans for immigration quotas, stating that the principle of free movement in the European Union is “non-negotiable”.

“Germany wishes for an active and engaged Great Britain within the EU,” the chancellor’s spokesman Steffen Seibert said at the German government’s weekly press conference in Berlin.

But while Germany remained keen to support Britain’s call for a crackdown on benefits tourism, he said, it drew a line at the principle of free movement of people within the European Union.

“She [Merkel] has made it very clear that the fight against the possible abuse of free movement is of legitimate interest for us in Germany as well,” Seibert said. “But the higher principle of freedom of movement in general should not be meddled with. We view that as an important European achievement. That is the government’s position, which hasn’t changed since the European Council meeting.

“It is up to Britain to work out what role it wants to play in future in the European Union. This is not a bilateral matter between Germany and Britain but between Britain and all of its European partners.”

David Cameron is seeking to change how freedom of movement operates in the EU. Earlier, George Osborne downplayed reports that Germany had warned that such a move could lead the UK towards leaving the EU.

The chancellor said he had had good discussions with the Germans and they were receptive to UK proposals. When talking about what Cameron would seek from the EU, he mentioned changes to rules around benefits, as well as “how freedom of movement operates”.

It was reported over the weekend in Der Spiegel that Merkel had warned Cameron that seeking a cap on migrant numbers was a line that could not be crossed.

Separately, it appears Downing Street has stopped pushing for quotas and is now looking at other options such as removing tax credits for migrants or asking them to leave if they are not supporting themselves after three months.

Osborne brushed off the report about Merkel’s warning. “First of all, you need to know that David Cameron and the Conservative party always puts Britain’s national interest first and we will do what’s in the interest of this country and the interest of this country’s economy,” he said.

“What we have today is a story which is based on speculation about what Angela Merkel might have said about something that David Cameron might say in the future. So I think it’s a little bit thin. We have had good discussions with the Germans; I was in Berlin just a few days ago myself. They understand the disquiet that is caused amongst British people when you have people coming from other parts of Europe here to claim our benefits, who don’t necessarily have jobs to go to.

“This is creating a huge pressure on public services and the British public want this addressed. So we’re going to do this in a calm and rational way, but the British people want this addressed. We’re employed by the British people and that’s what we’re going to do.”

Ukip leader Nigel Farage wades into the political debate over David Cameron’s European Union immigration demands Guardian

Cameron is expected to set out his plans for reducing EU immigration before Christmas, but Osborne would not be drawn on the plans. “You’ve got to wait to hear what David Cameron’s got to say; I’m not going to speak for him and give his speech on this sofa today,” he said.

“What we’re going to address is this question of how freedom of movement operates in the 21st century. It was never envisaged that you would have such large numbers of people coming, people coming who don’t have job offers, people who move on to our benefit system, although we’ve been able to tighten that up in recent months, but it’s still the case that they can do that.

“And that causes a lot of public unhappiness because they think it’s unfair. Of course, these are welfare payments paid for by hardworking British taxpayers.”

David Davis, a senior Tory MP and former leadership contender, said such comments between leaders were to be expected in the course of “real negotiation”.

He told BBC Radio 4’s Today programme: “It’s probably the biggest negotiation in the modern history of Europe if it’s looked at seriously and so we should expect what we are seeing now. These sort of bloodcurdling comments from both national leaders in Europe like Merkel, like [Radosław] Sikorski earlier – a friend of David Cameron, Polish foreign secretary – these are to be expected at this stage of the negotiation, a couple, two or three years away from the outcome. And of course they are driven very often by domestic politics. Merkel is important, of course, leader of the biggest country in Europe, but she is not the Iron Lady.”

Asked whether Der Spiegel’s report was an accurate account of the encounter between Cameron and Merkel, a No 10 official would only say: “The prime minister will do what is right for Britain as he has repeatedly made clear.”

There has been speculation that Cameron is rowing back from his focus and tough language on immigration amid fears that the Conservatives will never be able to go as far as Ukip supporters want. Jim Messina, a US election strategist who worked on Barack Obama’s campaign, is said to have told a Tory awayday on Friday that every moment the party is not talking about the economy between now and the election is wasted.