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With Merkel's bloc and the second-place Social Democrats in government, the right-wing Alternative for Germany, or AfD, now represents the biggest opposition party in Parliament, giving it a prominent platform to attack the chancellor.

Parliament is expected to meet March 14 to re-elect Merkel as chancellor, ending the longest time Germany has been without a new government after elections in its postwar history.

Merkel, who has proved herself a shrewd worldwide negotiator during more than 12 years in office, faced her greatest challenge at home after deciding to allow over a million asylum-seekers into Germany since 2015.

The SPD initially vowed to rebuild in opposition, only agreeing to talks on a return to its loveless marriage with Merkel after her negotiations with two smaller parties collapsed in November, plunging Germany into political uncertainty.

Merkel walks in to give a statement prior to a CDU leadership meeting at the party headquarters in Berlin.

Ralf Stegner, current leader of the SPD in Schleswig-Holstein, told local TV Phoenix that the vote is a good government basis, and the 33 plus percent who voted against the Grand Coalition would be a reminder.

The result of the SPD vote announced on Sunday brought relief to both German businesses and European capitals, which believe the euro zone would benefit from Merkel now being able to partner with France on President Emmanuel Macron's ambitious plans to reform the single currency bloc.

After September's election that handed her a victory but no clear majority, Merkel has been struggling to find partners to govern with.

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Interim SPD leader Olaf Scholz said: "Now we have clarity".

Meanwhile, Germany's deputy energy minister Rainer Baake has resigned from his post, citing his disappointment over the climate policy plans in the new coalition agreement. The radical youth wing had opposed the coalition.

Merkel's survival drew cheers from her allies at home and overseas, with French President Emmanuel Macron declaring it "good news for Europe".

"Criticism of the grand coalition remains", he tweeted after the ballot result."The SPD needs to be more like it has been in recent weeks and less like it has been in recent years - the Jusos will ensure this".

Now that Germany will finally have a proper government again - elections were originally held back in September - the real work can begin, and there are going to be some major changes.

Angela Merkel, also referred to as "Muttie" (mother) Merkel is still a popular choice in her country.

Her weakness on the refugee issue has forced the chancellor to name Jens Spahn, her main critic within the conservative bloc, as health minister in the new government.