The election will also bring a far-right party into Germany's parliament for the first time in more than half a century.
Mrs Merkel's conservative CDU/CSU alliance won 32.5 percent of the vote, making them the largest parliamentary group, an exit poll for broadcaster ARD indicated. However, that was down from 41.5 per cent in the last election, in 2013.
Support for the centre-left Social Democrats (SPD), currently junior partners in a so-called "grand coalition" with Mrs Merkel, slumped to 20 percent - a new post-war low. The SPD ruled out a re-run of that tie-up.
Meanwhile, Alternative for Germany (AfD), a far right, anti-Islam party, was on track to win 13.5 percent, emerging as Germany's third-strongest party.
The chancellor must now form a coalition government - an arduous process that could take months as all potential partners are unsure whether they really want to share power with her.
SPD deputy leader Manuela Schwesig said her party would now go into opposition. That would rule out a re-run of Merkel's existing alliance with the SPD.
An alternative coalition would be a three-way tie-up with the liberal Free Democrats (FDP) and the Greens. That is a combination as yet untested at national level and known as the "Jamaica" option because the three parties' colours are those of the black-gold-green Jamaican national flag.
Both parties have played down that prospect, Reuters reports, but as they have been out of government for four and 12 years respectively, they may be lured into an alliance by the prospect of power.
Mrs Merkel, Europe's longest serving leader, joins the late Helmut Kohl, her mentor who reunified Germany, and Konrad Adenauer, who led Germany's rebirth after WWII, as the only post-war chancellors to win four national elections.
Photo: AFP Angela Merkel's conservative bloc won 32.5 percent of the vote.