Chancellor Angela Merkel would rather see the UK exit from the European Union than compromise over the principle of free movement of workers, reports GHN based on BBC.
Mrs Merkel is alleged to fear that the UK is approaching a "point of no return".
Downing Street would not comment on the reports.
Mr Cameron wants to renegotiate the terms of the UK's continued membership before holding an in-out referendum.
The prime minister said that freedom of movement would be "at the very heart of my renegotiation strategy for Europe", but Mrs Merkel is said by the magazine to have made clear she will withdraw her support for the UK's continued EU membership if he continues to push for migration reform.
This is the first time that Mrs Merkel has acknowledged that the UK's exit from the EU is possible, Der Spiegel said.
According to the Sunday Times, Germany has already rejected a proposal to impose quotas on low-skilled EU migrants by limiting the national insurance numbers issued to them.
Der Spiegel reported that Mr Cameron was now looking at a plan to stretch the EU rules "to their limits" in order to ban migrants who do not have a job, and to deport those who are unable to support themselves after three months.
On Sunday, Conservative MP and former justice secretary Kenneth Clarke defended EU migration.
"If you're going to have a sensible single market, if we want to compete with the Americans and the Chinese and so on and modern world, we need the free movement of labour," he told BBC's Sunday Politics.
A Downing Street spokesman said Mr Cameron would make a speech on immigration before Christmas, and stressed "you can be sure he will always put Britain first."