Angela Merkel is standing down after 16 years in office. AFP
The centre-left Social Democrats (SPD) and their candidate Olaf Scholz narrowly won last Sunday's vote on 25.7 percent, with Merkel's conservative CDU-CSU alliance plunging to an all-time low of 24.1 percent as she prepares to leave the stage after 16 years in power.
The result leaves the SPD in pole position to form a government, but conservative leader Armin Laschet has also vowed to begin coalition talks in a last-ditch effort to keep the ailing CDU-CSU in power.
Speaking in front of party leaders at celebrations in Halle to mark German reunification in 1990, Merkel said the country once again had the opportunity to "shape" its next chapter.
"We can argue over exactly how in the future, but we know that the answer is in our hands, that we have to listen and speak with each other, that we have differences, but above all things in common," Merkel said, in clear reference to negotiations at hand.
In the complex calculations for a coalition, the makeup of the next German government essentially hinges on which of the two main parties can persuade the Greens and the liberal FDP to sign up for a partnership.
The SPD will first huddle with the FDP on Sunday afternoon to kick off their coalition discussions, before speaking with the Greens in the evening, in what weekly magazine Der Spiegel magazine has described as the "poker game for power".
Their rivals, the CDU-CSU, will meet with the FDP on Sunday evening and the Greens on Tuesday.
The Social Democrats have discovered new momentum since snatching the close electon win.
A poll for the Bild am Sonntag newspaper on Sunday showed that 28 percent of the public would vote SPD if the election were rerun, up two percent from the election itself. The conservative bloc meanwhile lost three percent points.
Some 76 percent of respondents said they thought Scholz should be the next German chancellor, with just 13 percent backing Laschet.
In an interview with Der Spiegel Friday, Scholz said it was "clear from every poll that people don't want the (CDU-CSU) to be part of the next government".
"The election result is clear. The CDU and CSU have suffered a historic defeat and have been voted out," he said.
Ahead of the talks, FDP leader Cristian Lindner, whose party is closer politically to the CDU than the SPD, put pressure on the conservatives, calling on them to clarify whether they "really" wanted to govern in an interview with the Bild am Sonntag.
But the conservatives are not giving up, with Markus Blume, general secretary of the CSU, insisting on Friday that a conservative-led coalition "has a chance".
In what was billed as perhaps her last major speech as chancellor, Merkel on Sunday made an appeal for her successors to defend democracy amid the scramble to form a government.
"We sometimes take our democratic accomplishments too lightly," Germany's long-standing leader said in her speech, asking the public to "reject radicalisation", while referring to a neo-Nazi attack on a synagogue in the city where she was speaking two years previous.
"Diversity and difference" were not threats to society, Merkel added, as Germany had shown in the years since the fall of the Berlin Wall.
The veteran politician, who lived in the communist east before reunification, was visibly moved as she described her own struggles with prejudice and called for more "respect" for the personal histories of east Germans.