SPD leader Franz Muentefering was to sit down with the ecologist Greens, junior partners in the ruling coalition, at the start of negotiations on Wednesday with the aim of seeing Schroeder confirmed as German leader.
Neither Schroeder's Social Democrats nor Angela Merkel's conservative opposition Christian Democrats managed to win a ruling majority in the election held on Sunday.
The conservatives came out on top, but their three-seat advantage is so slim that both Schroeder and Merkel staked claims to govern the country.
The impasse sparked what is essentially a race to see who can form a stable governing majority first.
Wednesday's meeting between the current ruling parties will start the process.
The Christian Democrats will begin separate coalition negotiations on Thursday with the Social Democrats and the small, liberal Free Democrats, who are their preferred partners but hold too few seats in parliament to create a ruling majority.
The most likely option currently appears to be a "grand coalition" that would group the Social Democrats and the Christian Democrats.
But Schroeder has said his Social Democrats will not join a government under Merkel's leadership, effectively inviting her party to oust her.
Merkel's party confirmed her as
their leader on Tuesday
Merkel insisted on Tuesday that the Christian Democrats' lead gave her a mandate to form the government.
The party rallied around her on Tuesday, with their parliamentary group voting to confirm her as their leader with a record 98.6% score.
"The result underscores that we, as the strongest party in parliament, have a mandate to form the government," Merkel said after the vote.
"We have a complicated task ahead of us but it can be done."
Schroeder also reasserted his claim to the chancellery on Tuesday and said he would lead open-ended negotiations with a view to forming a government.
"We are at the stage of exploratory talks. It is a question of seeing how we can put in place the stable government we need at the moment," he said.
"We are at the stage of exploratory talks. It is a question of seeing how we can put in place the stable government we need at the moment"
The absence of a new government has added to the economic uncertainty in a country struggling with an 11.4% unemployment rate, a swelling public deficit and stagnant growth.
European partners have urged the parties to find a solution quickly.
The Sun, Britain's biggest-selling daily, simply stated on Tuesday that "Germany is in an awful mess".