In a speech to her party conference in Cologne, Merkel criticized her center-left coalition partner for joining a regional government led by the Left party - the heir to East Germany's ruling communist Socialist Unity Party.
During her 60-minute address, Merkel called the decision of the Social Democrats (SPD) a "declaration of bankruptcy."
"Just how much smaller does the SPD want to make itself?" said Merkel, referring to the party's place as a junior partner to the Left party in the Thuringia state government.
The SPD and the Greens are both allied to the senior Left party at the state parliament in Erfurt - a so-called Red-Red-Green coalition. The CDU accuses both of betraying victims of East Germany's communist dictatorship.
Merkel warned of the prospect of such a coalition at a national level. "Only our own strength, a strong conservative party, can prevent a Red-Red-Green (left-wing coalition) from taking power at the federal level in 2017."
'Our natural partner'
The chancellor, meanwhile, praised the work of the party's 2009 to 2013 coalition with the liberal Free Democrats (FDP), claiming it had "put many things on the right course."
The FDP remained the favored coalition partner for the CDU, Merkel indicated, despite having failed to pass the 5 percent threshold for representation in Germany's lower house, the Bundestag. "It is and remains our natural coalition partner," the chancellor said. "Sometimes I wonder to myself how it can be that so many people have definitively written off the FDP."
In the lengthy speech, Merkel defended her austerity policies and paid tribute to the contribution to economic stability made by Finance Minister Wolfgang Schäuble, who was in Brussels for a meeting of EU finance ministers.
'Let us be brave'
That the government would take on no new debts in the coming year for the first time since 2015 was a "historic achievement," Merkel said.
"One things is clear," Merkel said. "We can't stand still. I don't want that tomorrow we only remember the successful policies of yesterday."
"I want for us to shape Germany's future," the chancellor said. "Let us be brave in these exciting times."
Delegates at the conference were also to be asked to re-elect the chancellor for an eighth consecutive term as party leader.
The last election took place two years ago, when Merkel won 97.9 percent of members' votes. Since then, the 60-year-old former physicist has been returned as chancellor for a third time. Her approval rating was put at 67 percent in the latest survey by the public broadcaster ARD.
rc/mkg (AFP, dpa, Reuters)