The European Council agreed in February to a number of reforms proposed by Britain to try and counter the risk of the UK leaving the bloc in its 23 June referendum.
However, ALDE group MEP Lambsdorff has said the EU went too far in the concessions it offered to the UK, including a planned emergency brake on freedom of movement.
"On this issue, it clearly went too far," he said. "We are talking about one of the four fundamental freedoms of the internal market, which from a liberal point of view is the most important part of European integration."
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The German deputy reportedly said; "Member state leaders have met within the framework of the European Council, but their agreement is in no way a document of the EU, but a text of hybrid character, which is unspecified and not legally binding. At the moment, the whole thing is nothing more than a deal that has been hammered out down the local bazaar."
Meanwhile Iain Duncan-Smith, the UK's former work and pensions secretary, has claimed that Germany was secretly in control of David Cameron's EU renegotiation throughout, and talked him out of asking for key concessions.
The attempt to redraw Britain's membership of the EU is the centrepiece of the Cameron-led campaign to keep the UK in the EU and the former government minister's claims will only deepen the Tory party's raging civil war over Europe.
His comments on Tuesday come as the Vote Leave campaign this week steps up its assault on Cameron's controversial renegotiation in a bid to force it up the agenda.
If the UK votes to stay in the EU, MEPs will have to vote on the renegotiation package before it can come into effect.
Reaction to Lambsdorff's comments was swift, with UK Tory MEP Julie Girling saying, "Lambsdorff is expressing his personal views, he is only one of 751 MEPs. I do not believe that he, or the ALDE group, will jeopardise the UK's continuing membership of the EU if the British people vote to remain on June 23.
"I am confident that the vast majority of MEPs will vote to accept the PM's package. I am not so confident that Parliament will be cooperative if a Brexit vote is successful. I do not think it will be an amicable divorce and Parliament will play a part in making it as difficult as possible for the UK to forge a beneficial trade deal."
British Conservative member Sajjad Karim commented, "The deal was agreed by all our national leaders including Angela Merkel. While a few MEPs from some smaller delegations and groups may have their reservations, ultimately the Parliament will back the national leaders."
Further comment came from former Liberal MEP Andrew Duff, who said, "The Cameron deal on 19 February was binding only on his 27 colleagues in the European Council. Implementing the deal will be very complex, very controversial and very long - and not just in the European Parliament."
Commenting on Iain Duncan-Smith's claims, UKIP leader Nigel Farage said "Thanks to him we also learn that Cam Scam, Cameron's so-called EU reform deal, was finally judged and rejected by the German government.
"In his provisional EU reform deal Cameron has been humiliated, defeated and ridiculed by his German political masters. Germany wants to make the final decision on all big EU issues, be it the EU budget, the fiscal and pension policy of Greece or the setting up of an EU army under German control.
"As MEPs have already said they will vote against Cameron's EU reform deal, and even the House of Commons library says it is not legally binding, how can the Prime Minister make this empty promise the centrepiece of his referendum campaign?
"We know that Cameron's pathetic EU proposal is not legally binding, not enforceable and it won't happen."