The only candidate in the centre-left Social Democratic Party, SPD, leadership race, 52-year-old Steinmeier won just over 95 percent of the secret ballots cast by delegates at a special meeting in Berlin.
The foreign minister, who is also vice-chancellor in the three-year-old grand coalition in which Merkel's Christian Democrats (CDU/CSU) co-govern Germany with the SPD, slammed laissez-fair economics which he blamed on the current financial crisis.
“Everyone can feel it, we are at the start of a new time,” he said. “The domination of a radical market ideology which started with Margaret Thatcher and Ronald Reagan has ended with a big bang. We can now decide the rules of our community anew.”
He said new rules needed to be implemented to regulate the finance world.
“I want to re-order the relationship between politics and economics... It is time to think differently. We need a fresh start so we can provide better regulation of the financial sector,” he said.
He also spoke of protecting jobs in the face of a potential recession, and said the SPD would not be moved from its support of job protection or trades union. But he promised that the SPD would draw up an economic stimulation package.
Steinmeier was chief of staff in former chancellor Gerhard Schroeder's centre-left ruling coalition, helping shape an effective but unpopular package of economic reforms known as Agenda 2010.
After elections in 2005 that left neither the CDU nor the SPD with enough seats to rule with their preferred coalition partners, Steinmeier became foreign minister.
Delegates Saturday also elected former vice-chancellor Franz Müntefering as the new SPD chairman, replacing Kurt Beck who resigned in September.
The SPD, which wants to end the uneasy grand coalition under Merkel, faces a difficult battle to win back the chancellery next September, according to recent polls.