The warning came in a recent letter from the US ambassador to Germany seen by the Wall Street Journal.
The US has been lobbying its allies to boycott Huawei due to national security risks.
The firm has pushed back against claims it poses a security threat including suing the US government.
US ambassador Richard Grenell said the US would not be able to keep the same level of co-operation with German security agencies if Germany allowed Huawei or other Chinese firms to participate in its next-generation 5G mobile network, the Wall Street Journal reported.
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In the letter to Germany’s economics minister dated last Friday, Mr Grenell said secure communications systems are essential for defence and intelligence co-operation, and that firms like Huawei could compromise this.
The warning marks an escalation in the Trump administration’s efforts to convince allies to boycott the Chinese tech giant.
The US, Australia and New Zealand have all blocked local firms from using Huawei to provide the technology for their 5G networks.
Huawei has launched a more aggressive strategy in recent months to counter what it sees as an American “smear” campaign.
