The votes also hold risks for the ailing Social Democrats, Merkel's primary rivals, who could be pressed into alliances with the far-left - a brush the chancellor could use to tar them with ahead of the September 27 election.
Some 6.2 million voters will be called to the polls in the ex-communist eastern states of Saxony and Thuringia and the western state of Saarland. Each is currently governed by a premier from Merkel's Christian Democrats (CDU).
The CDU is trouncing the Social Democrats in current national polls, with around a 13-point lead and just four weeks to go.
But the state elections come at the end of a tough week for Merkel, amid turmoil over the future of automaker Opel, sniping between the CDU and its favoured coalition partners, the pro-business Free Democrats (FDP), and a flap over a dinner she held for the head of Germany's top bank.
Pollsters say the Social Democrats are set to grab at least a few points off the scores of Merkel's party from the last elections in 2004.
They may even rob the conservatives of their coalition majorities in Thuringia, where the CDU has led since unification in 1990.
In any case, the CDU is set to win fewer votes than five years ago, when the conservatives could used public outrage over tough labour market reforms introduced by Gerhard Schröder's SPD-Green coalition.
"The situation in 2004 was exceptional with an SPD-Green government on its last legs - the CDU was able to seize on that," the head of polling institute Dimap, Reinhard Schlinkert, told news agency AFP.
Political scientist Peter Loesche of the University of Göttingen said the SPD would likely gain ground in Saxony and Thuringia and possibly seize the majority in Saarland.
That scenario would be thanks to the strength of the far-left Die Linke, a relatively new party grouping disaffected Social Democrats and former East German communists.
They are set to come in a strong third in Saarland and the SPD's chancellor candidate, Foreign Minister Frank-Walter Steinmeier, this week gave his blessing to "red-red" coalitions with Die Linke on the state level.
"The SPD must do what it can to lead governments," he said, while continuing to rule out an alliance with the extreme left in the national government.
Nevertheless Merkel, her fellow conservatives and the Free Democrats have raised the spectre of a desperate SPD forgetting its pledges and getting in bed with Die Linke, a party that favours the immediate withdrawal of German troops from Afghanistan and massive increases in social welfare spending.
"This state must under no circumstances fall into red hands," Merkel, who was raised in communist East Germany, told a campaign rally in Saarland Wednesday.
A coalition between the Social Democrats and Die Linke in Saarland would be the first such alliance in a western state.
But if the SPD fails to flip at least one of the three CDU-led states on Sunday, it could be a debacle for a party that is running out of chances to turn the tide before the general election.
"If the CDU manages to win a majority with the liberals (FDP) in one of the three states, that could give it grist for the mill in its national strategy," Loesche said.