Chancellor Angela Merkel's conservatives lost a closely-watched state poll Sunday, weakening her hand as she embarks on complex coalition talks following a disappointing showing at last month's general election.

Martin Schulz's Social Democrats (SPD) took over 37 percent of votes in the western state of Lower Saxony, the home of Volkswagen, beating Merkel's CDU at 33.4 to 34.3 percent, according to estimates released by public broadcasters ARD and ZDF.

The far-right Alternative for Germany (AfD), fresh from winning its first seats in the Bundestag, scored six percent, giving the anti-Islam party a presence in 14 of Germany's 16 regional parliaments.

The SPD victory will come as a relief to former European Parliament chief Schulz, who oversaw three regional election losses this year and pledged to go into the opposition after last month's humiliating defeat at the national level.

The Lower Saxony vote took on outsized significance coming just three weeks after a September 24 general election that handed Merkel's conservative bloc its worst result in decades, while marking a breakthrough for the far-right AfD.

Merkel still won a fourth term, but to form a government she must now forge an alliance with the left-leaning Greens and the liberal and pro-business Free Democrats (FDP), a political poker game that could drag on well into 2018.

Commentators had warned that a setback in Lower Saxony would weaken Merkel's bargaining position as she begins the negotiations in Berlin on Wednesday.

News weekly Der Spiegel said the state poll did nothing to boost Merkel and sent a "bad starting signal" for the talks.

But the defeat was "bearable", it added, considering the CDU's successes in other regional elections this year.

- 'Tail wind' -

Lower Saxony was forced into a snap vote after the ruling coalition of SPD and the Greens collapsed when it lost its wafer-thin majority due to the defection of a lawmaker to the CDU.

Opinion polls had given the CDU a clear lead early on, but that advantage evaporated in the final stretch.

The SPD's state premier Stephan Weil hailed the poll win as a "roaring success" after a "catch-up race".

Schulz was equally effusive, praising voters for giving the SPD "a tail wind" as the party readies to move to the opposition benches in Berlin.

It remains to be seen whether the SPD and the Greens secured enough seats to continue governing together in Lower Saxony.

By 1800 GMT, the latest results gave the Greens around 8.5 percent of votes, followed by the FDP at some seven percent.

The CDU's general secretary, Peter Tauber, said all three parties meeting for coalition talks in Berlin had "lost ground" in Lower Saxony, but he downplayed its significance.

"It remains a regional election and we have a clear task in Berlin to build a stable government," he said.

- 'Great pressure' -

The unlikely three-way alliance that could make up Germany's next government has been dubbed "Jamaica" because the parties' colours match the Caribbean country's flag -- black for Merkel's conservatives, yellow for the FDP, and green for the Green party.

A "Jamaica" coalition is untested at the national level.

Among the flashpoint topics will be questions surrounding the more than one million asylum seekers who arrived in Germany since 2015.

The CDU's Bavarian allies, the CSU, have signalled a tough stance on immigration to win back voters who have drifted to the AfD.

They would find an ally in FDP leader Christian Lindner, who on Friday insisted there must be a "clear time limit for the residency of war refugees in Germany".

But the Greens are more welcoming towards refugees and also proponents of European "solidarity" -- while the FDP has said it will not accept German taxpayers footing the bill for any attempts at shoring up the EU.

The Greens will push issues like fighting climate change and promoting renewable energy, likely to be opposed by the more pro-business parties.

All players are highly reluctant to make major concessions, said Oskar Niedermayer of Berlin's Free University.

"But of course it is also clear that all sides are under great pressure. Because the alternatives -- a minority government or fresh elections -- are something the German people do not want."

Source: AFP