Merkel on Monday urged her rival's Social Democrats to "accept that they are not the strongest group" in parliament and to enter talks on a broad right-left alliance under her leadership.

But within minutes, the chairman of the Social Democrats, Franz Muentefering, said his party would insist on Schroeder remaining chancellor and said he had invited other party leaders to hold talks on a new coalition.

"I have initiated contact with the offices" of the other parties, Merkel said, adding that she, like Schroeder, would refuse to hold talks with the Left Party, an alliance of ex-communists and former Social Democrats angered by the chancellor's efforts to trim the welfare state.

Muentefering said any linkup between his party and Merkel's would be without Merkel as chancellor.

"The message was clear: this country does not want Mrs Merkel as chancellor," he said.

The deadlock

Sunday's election denied a majority both to Schroeder's outgoing government of Social Democrats and Greens and to Merkel's preferred combination of her Christian Democrats and the pro-business Free Democrats.

Schroeder refused to back off his claim to form a new coalition, saying his party "has made clear its will to lead this country in government".

Voters have plunged Germany
into political limbo

"Our task is to implement this declared will of our whole party, and we will do that," he told cheering supporters in a brief appearance at the Social Democrats' headquarters. He did not elaborate.

Muentefering said the Social Democrats' claim to be the strongest party resulted from the division between Merkel's Christian Democrats and the CSU.

However, the two parties have always had a single parliamentary group, fielded a joint candidate for chancellor and campaigned together.

"I do not rule out anybody revising their position," Merkel said of Schroeder, adding that a new government should be formed quickly.

Conservative leaders said they also would seek talks with the Greens on a three-way combination that would include the Free Democrats, but received a cool reaction.

Greens' reaction

Foreign Minister Joschka Fischer, who led the Greens' campaign, said he would not serve in a Merkel cabinet.

"We are interested in content," Greens co-leader Claudia Roth said on ARD television. "We are not interested just in governing."

Merkel likely will have to water down plans to shake up Germany's labour market and reform its tax system to gain a majority with a party to her left. To woo the Greens, she likely would have to soften plans to halt the outgoing government's programme of shutting down nuclear power plants.

Her opposition to Turkish membership in the European Union was also up in the air.

Grand coalition?

With the Left Party ruled out as a partner, Schroeder's only option besides a "grand coalition" with the Christian Democrats would be a combination of Social Democrats, Greens and Free Democrats, a possibility the latter rejected.

If the new parliament cannot elect a chancellor in three attempts, President Horst Koehler could appoint a minority government led by the party with a simple majority.

"The message was clear: this country does not want Mrs Merkel as chancellor"

Franz Muentefering,
Social Democrats' party chairman

That would raise the prospect of instability and the chance for yet another election before parliament's four-year term is up.

Both major parties suffered losses in the election, with Merkel's Christian Democrats winning 35.2% of the vote against 34.3% for Schroeder's party.

Three years ago, both scored 38.5%.

The three smaller parties all performed strongly, with the Free Democrats winning 9.8%, 8.1% for the Greens and 8.7% for the Left Party.