Visiting Ankara, German Interior Minister Nancy Faeser said Turkish reprisals should be proportionate, not harm civilians and follow international law.
It came after Turkey carried out military strikes in Iraq and Syria and vowed that “not a single drop of blood” would go unpunished.
“We know terrorists' identities, locations, and records. We also know very well who back these terrorists, provides arms, and provokes them,” Turkish President Recep Tayyip Erdogan said.
Ms Faeser said Germany supported Turkey's fight against terrorism and said the two countries were co-operating on the terrorist threat, migration and organised crime.
But “as much as we understand the hard struggle against terrorism, responses must be proportionate and civilians in particular must be protected,” she said.
“I appeal for an escalation of violence to be prevented.”
Speaking at a press conference alongside Ms Faeser, her Turkish counterpart Suleyman Soylu said it was the government's job to defend the country and its borders against terrorism.
“After Poland was hit by two rockets, the whole world stood up,” he said, referring to an explosion that killed two people near the border with Ukraine last week.
“We should show the same attitude when terror attack happens in Germany, in Europe or anywhere in the world — the same attitude should be shown to a terror attack in Turkey.”
Turkey blames the attack on the PKK, Kurdish separatists who are classed as terrorists by the European Union.
Mr Erdogan said terrorist targets were hit in northern Iraq and Syria in a response to the “cowardly attack” in Istanbul, in what is known as Operation Claw Sword.
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The US on Monday called for de-escalation in Syria and said it opposed any “unco-ordinated military action in Iraq that violates Iraq’s sovereignty”.
Russian officials also urged restraint from Ankara. Kremlin spokesman Dmitry Peskov said Turkey should “refrain from steps that could lead to a serious destabilisation of the situation in general”.
“It can come back as a boomerang, complicate the state of security affairs even more,” Mr Peskov said.
Ankara's struggle against the PKK has taken on a wider significance because of its demands that Sweden and Finland root out Kurdish terrorists in their countries before they can join Nato.
The two Nordic countries signed a deal in June agreeing to take a harder line, but Mr Erdogan has yet to pronounce himself satisfied with their efforts.