In a speech lasting almost two hours and punctuated with frequent bursts of enthusiastic applause, Steinbrück said: "Freedom, justice, solidarity. . . with a commitment to these values, I am running to be chancellor of the Federal Republic of Germany."
"It is time for a change," thundered the 65-year-old former finance minister, rewarded with an almost 10-minute standing ovation from his Social Democratic Party (SPD) supporters in the northern city of Hannover.
SPD delegates were officially nominated him with a vote of just over 93 percent as their candidate for the unenviable task of unseating Merkel, often ranked the world's most powerful woman, at federal elections expected in September.
Steinbrück accused Merkel's party, the conservative CDU, of having no election strategy apart from relying on her and said her political slogans were "stickers on empty bottles" with little substance behind them.
"Mrs Merkel said she is running the best and successful government since reunification (in 1990). I have rarely laughed so much," said Steinbrück to tumultuous applause.
He pledged to put an end to what he said was "an increasing trend toward parallel societies" in Germany, the haves and the have-nots.
While he was forced to acknowledge that Europe's top economy currently had low unemployment rates, he stressed that many of those in work were not being paid fairly and pledged a legal minimum hourly wage of €8.50.
And on the international stage, he vowed to "show his colours and go into the federal election with a clear pro-European stance."
"Europe is more than a common market, it is more than a currency union. . . it is more than a club of 27 European leaders. Europe is civilisation," he said.
He accused Merkel of fostering "isolation" in Europe with her policies against the debt crisis.
German media had seen Steinbrück's speech as a final chance to kick-start his campaign after damaging revelations that he had pocketed some €1.25 million in fees for making speeches at private functions.
Steinbrück himself briefly touched on the issue, saying: "My fees for speeches were rocks in my backpack that you have also had to carry on your shoulders."
And opinion polls point to the scale of the task facing the centre-left SPD's candidate against Merkel, who continues to be Germany's most popular politician.
A poll released by ARD public television ahead of the party conference showed the SPD still languishing some nine points behind Merkel's conservative CDU and CSU sister party from Bavaria.
Germans do not directly elect their chancellor but if they could, 49 percent would plump for Merkel and only 39 percent would vote for Steinbrück in the election, the poll showed, although the gap appears to be narrowing slightly.
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Another poll on Sunday, conducted by Emnid for the Bild am Sonntag weekly paper, showed that more than half (52 percent) of Germans did not think he was chancellor material, with 41 percent believing the opposite.
Undaunted, Steinbrück vowed he would not join with Merkel in a so-called "grand coalition" and called on party members to "trust in ourselves and others will trust in us.
"If we stand side-by-side, then we'll get there," he pledged.