The regional election became crucial to Germany’s balance of power after it agreed to a hugely unpopular bailout of Greece.
Merkel’s conservative Christian Democrats won 34.5 per cent of the vote and their allies the Free Democrats around 6.5 per cent. The main opposition Social Democrats also finished with 34.5 per cent and the Greens 12.5 per cent, according to a partial count.
The result means Merkel will have to compromise to push through planned tax cuts and health insurance reform.
She last week bowed to demands for a €110bn (£94.6bn) rescue package for Greece despite widespread resistance to the proposal in Germany, which has shouldered €22.4bn of the cost of the bailout.
She had originally tried to stall the decision for fear of alienating voters opposed to the rescue package, but was forced to act when turmoil on the financial markets threatened to put the stability of the euro at stake.
But the concession cost her dearly in yesterday’s election in Germany’s most populous state, home to over 18m people. Merkel has campaigned in the region for the re-election of fellow centre-right Christian Democrat candidate Jürgen Rüttgers, the state’s governor, after recent polls showed support for him has crumbled to around the same level as that for the Social Democratic Party, led by Hannelore Kraft.
The regional election was the first critical test for Merkel’s coalition government since it came to power last October.