|Social Democratic Party (SPD) leader and top candidate for chancellor Olaf Scholz and his wife Britta Ernst react after first exit polls for the general elections in Berlin, Germany, September 26, 2021. (REUTERS/Wolfgang Rattay)
The centre-left Social Democrats (SPD) were on track for 26% of the vote, ahead of 24.5% for Merkel's CDU/CSU conservative bloc, projections for broadcaster ZDF showed, but both groups believed they could lead the next government.
With neither major bloc commanding a majority, and both reluctant to repeat their "grand coalition" of the past four years, the most likely outcome is a three-way alliance led by either the Social Democrats or Merkel's conservatives.
Agreeing a new coalition could take months, and will likely involve the smaller Greens and liberal Free Democrats (FDP).
"We are ahead in all the surveys now," the Social Democrats' chancellor candidate, Olaf Scholz, said in a round table discussion with other candidates after the vote.
"It is an encouraging message and a clear mandate to make sure that we get a good, pragmatic government for Germany," he added after earlier addressing jubilant SPD supporters.
The SPD's rise heralds a swing left for Germany and marks a remarkable comeback for the party, which has recovered some 10 points in support in just three months to improve on its 20.5% result in the 2017 national election.
Scholz's conservative rival Armin Laschet, signalled his bloc was not ready yet to concede, though his supporters were subdued.
"It hasn't always been the first-placed party that provided the chancellor," Laschet, 60, told the round table. "I want a government where every partner is involved, where everyone is visible - not one where only the chancellor gets to shine," he said in an early attempt to woo smaller parties.
Attention will now shift to informal discussions followed by more formal coalition negotiations, which could take months, leaving Merkel in charge in a caretaker role.
Scholz and Laschet both said they would aim to strike a coalition deal before Christmas.