A spokesperson for the SPD confirmed it had reached a deal with Merkel’s center-right CDU, but stressed that it would need to be formally approved by the party’s 460,000 members.
The announcement represents a huge breakthrough for Merkel, who has struggled to form a government since suffering embarrassment at September’s election.
The deal paves the way for a return to the so-called “grand coalition” between the CDU and SPD, which governed prior to the last election. It would also leave the right-wing Alternative for Germany party as the main opposition in the German parliament.
The agreement represents a U-turn by the SPD, which had originally said it would rather rebuild itself in opposition than prop up another Merkel administration, after suffering its worst election result since World War II.
A recent poll from public broadcaster ARD showed that 52% of respondents did not think another grand coalition was a good idea.