Germany’s centre-left Social Democrats (SPD) have claimed victory by acquiring 206 seats in the federal election BBC reports.
SPD leader Olaf Scholz said he had a clear mandate to form a government, while his conservative rival Armin Laschet remains determined to fight on.
But Mr Scholz says it is time for a new coalition with the Greens and liberals.
Preliminary results gave his party a narrow election win over the conservatives who suffered their worst-ever performance.
Despite this, Mr Laschet said his party had given him its backing to enter talks with coalition partners, pushing Germany towards a potentially protracted power struggle.
The Greens and pro-business FDP attracted the most support from the under-30s, in an election dominated by climate change and by differing proposals on how to tackle it. The Greens made history with almost 15% of the vote, even though it was well short of their ambitions.
The outgoing chancellor Anjela Merkel is going lead the Germany until the coalition is formed – and that may have to wait until Christmas.
The main parties want a new government in place by the time Germany takes over the leadership of the G7 group of nations in January.
The next chancellor’s task is to lead Europe’s foremost economy over the next four years, with climate change at the top of voters’ agenda.