Reuters cited German Government spokesman Steffen Seibert as saying Berlin wanted to minimise security risks but was yet to decide on what specific measures to take.
A decision is likely to be made next week when leaders of German Chancellor Angela Merkel's coalition are scheduled to meet.
The head of the Federation of German Industry, Dieter Kempf, backed this stance, saying it would be better to lay down strict standards for companies like Huawei, rather than impose a blanket ban on Chinese companies.
The US has been aggressively lobbying Western nations to boycott Chinese companies when it comes to handing out 5G contracts and sees the European Union as its top priority.
An American official was quoted as saying: "We are saying you need to be very, very cautious and we are urging folks not to rush ahead and sign contracts with untrusted suppliers from countries like China.
“Going with an untrusted supplier like Huawei or ZTE will have all sorts of ramifications for your national security and ... since we are military allies with almost all members of the European Union, on our national security as well.”