Exit polls, conducted after voting ended in the northern state of Schleswig-Holstein, say Merkel's CDU is neck-and-neck with the opposition Social Democrats. It is a victory of sorts for the CDU.
Christian Democrats at campaign headquarters in Schleswig-Holstein's state capital, Kiel, erupted into cheers as the first exit polls were released Sunday evening.
German state broadcasters ARD and ZDF said the Christian Democrats (CDU) and Social Democrats (SPD) both gained around one-third of the vote, with ARD putting the CDU ahead with 30.5 and the SPD with 29.5, and ZDF estimating they both earned 30.5 percent.
The pro-business Free Democrats, which were the junior partner in the ruling coalition alongside the CDU, won 8.5 percent. That's a dramatic fall from their 14.9 percent in 2009 elections, but well above the 5-percent barrier to have a parliamentary mandate. Many thought the election would mean an end to their presence in the state parliament.
The Green party was jubilant in third place with 13-14 percent, while the fledgling Pirate party succeeded in winning around 8 percent, allowing it into the state parliament for the first time. The SSW party, which represents the ethnic Danish minority in the state, won 4.5 percent - but due to their special status, SSW will remain in parliament.
Though the results mean the end of the CDU-FDP government coalition, there's little more that is clear. Once final results are announced, it will be up to the parties to try to forge alliances and get a mandate to create a new government.
The Greens have already said they would be unwilling to work with the CDU. A coalition between the SPD, Greens and SSW is one possibility.
Voters showed a lack of interest in the election that was such a nail-biter for the political establishment. Only 40 percent of the 2.2 million eligible voters cast ballots, far lower than turnout in 2009, which stood at 73.6.
The poll has been interpreted as a potential problem for Merkel. The routing of the CDU-FDP coalition casts a negative light on her government, which is made up of the same parties at the federal level. She faces another risk in the next state poll, in the most populous German state, North Rhine-Westphalia, next weekend. A strong showing there for the CDU and FDP would strengthen her own position in Berlin.
It also means that only four states will in the future be ruled by conservative-FDP governments, changing the balance in the Bundesrat, the upper house of parliament, which represents the states.
The Schleswig-Holstein snap election was called after a state court deemed the allotment of parliamentary seats unconstitutional.
ncy/msh (dpa, DAPD)