Although this does not represent a formal expulsion in diplomatic terms it sends a worrying signal that all is not well between Washington and Berlin.
Some idea of the seriousness of the situation can be found in the following comment made by a German diplomatic source. She claims that such drastic action had previously been unthinkable and would have only been considered practicable when dealing with "pariah states like North Korea or Iran".
The decision is also linked to the arrest (and later release) of a middle management German Defence Ministry security service (BND) employee whose home and office were searched last week without anything suspicious being discovered. Later it was found that the official under question was suspected of handing over sensitive documents to the CIA
During the same period, German police authorities investigated another BND employee who was apprehended last week on suspicion of attempting to spy for the Russians and who subsequently admitted that he had been selling secret documents to the US. Later German government officials admitted that the documents were considered to be "less delicate" than those found in the possession of the Defence Ministry official.
According to the authoritative Süddeutsche Zeitung newspaper, the CIA official in question was responsible for co-ordinating US secret service activity in Germany, and was the key contact for two German officials who were recently arrested for alleged spying activities. This was confirmed by Clemens Binninger, a member of Merkel's Christian Democrats, who chairs the committee administering the German intelligence services and who said that the situation had been exacerbated by Washington's "failure to co-operate on resolving various allegations, starting with the NSA and up to the latest incidents".
While cautioning that the matter is under investigation, German government officials have still expressed surprise that the US refused to put a stop to espionage activities after last year's anger over NSA activities in Germany, especially the monitoring of the chancellor's mobile phone.
But not every senior German politician shared that sense of outrage. Finance Minister Wolfgang Schäuble, one of the country's longest-serving politicians, pointed out in a televised interview last week that the country needed US intelligence help to defend itself against global terrorist threats. He described the alleged US attempts to spy on dupes such as middle-rank German government employees as "idiotic".
The minister is known to be outspoken with colourful language and it came as no surprise that he ended his interview with the thought that: "So much stupidity makes one want to cry."
Inevitably in a post-modernist country like Germany with a troubled and divided past, the spat with the US has divided opinion. For every comment that Germany is a victim of its own recent past as a close ally of the US, there are crueller comments such as those uttered by the highly respected Berlin political commentator Jakob Augstein: "The bitter truth is the relationship between the Americans and us resembles that between a dog and its owner," he said in a newspaper column last week. "And, unfortunately, the American owner doesn't love the German dachshund. The owner only needs it to occasionally fetch something."
During the Cold War years Germany and the US were staunch allies - West Germany's position on the front line against the Soviet Union made it a key player in the espionage war - but following the collapse of communism and the reunification of Germany the relationship has cooled.
A new and younger generation is no longer in awe of the "Amis" and their Coca-Cola culture and many of them objected to the US-led invasion of Iraq in 2003. Against that background there is no longer an unthinking alliance with the US and many see the removal of the CIA official as a sign of German's growing maturity.
One other factor intrudes in last week's decision. For the past year Germany has been at loggerheads with the US following the revelations made by Edward Snowden, a senior official in the National Security Agency (NSA). A self-proclaimed whistle-blower Snowden rocked the world last year with breath-taking revelations that his agency regularly spied on its closest allies including Germany. Particularly damaging were his claims that the NSA routinely tapped Merkel's private phone and might have done so from the roof of the US embassy in Berlin.
Two months ago it was revealed that the US government denied Merkel access to view her NSA file prior to a state visit to Washington in a breach of protocol which seemed at the time to be small-minded and which rankled Berlin. Now the German leader seems to have finally run out of patience with Washington's failure to set the record straight and give her a fair hearing. Revelations that Merkel's mobile phone had been monitored by the NSA led to the creation of a parliamentary board of inquiry in March but its work has been stymied by Washington's refusal to answer a list of questions which one German diplomat described as being "simple and honest at least as far as good friends are concerned".
"US policy has simply been to stonewall, to answer no questions, and to leave Germany alone with this problem," said Hans-Christian Ströbele, an opposition member of the parliamentary security committee. "There is substantial anger in the government."
There are few precedents for such drastic action between Nato members. Among the latest was France's decision in 1995 to send home five US officials for allegedly spying on its territory. The case was further complicated by a love affair between a CIA officer and a French official. The French did not arrest the officials concerned but simply allowed the officials involved to leave the country without any fuss. For a time the CIA shut down its Paris office and replaced the head of station.
During the early years of the Cold War there were serious breaches in Western security caused by British double agents such as Kim Philby and Burgess and Maclean but the German crisis does not come into that league. What is involved is the breach of trust caused by a supposedly close ally which has unforgivably let down its close friend. Andre Hahn, a socialist member of the government panel for the intelligence services argues that the succession of spying cases in Germany had shown that "we wouldn't put anything past Russia and China. But there's blind trust in the US".
Merkel seemed to recognise that fact this when she admitted that while spying activities between allies was commonplace during the Cold War there was no place for it in the modern world. In any case from a historical perspective spying is still a particularly sensitive issue in Germany given the part played by government surveillance during the Nazi and Communist eras
Officials in Washington declined to comment on Germany's action or the allegations of US spying, while repeating that they valued their alliance with Berlin. Off the record they acknowledged it was the CIA's head of station in Berlin who had been asked to leave the country. In their books he is responsible for maintaining a relationship with the host country's intelligence services as well as for supervising any US spy operations there.
"Any sort of comment on any reported intelligence acts would put at risk US assets, US personnel and the United States national security," White House press secretary Josh Earnest said. "We do continue to be in touch with the Germans at a variety of levels, including through law enforcement, diplomatic and even intelligence channels."