According to exit polls released by public broadcaster ARD, the SPD was the strongest party, with 37 percent of the vote, a significant gain on their 2006 performance of 30.2 percent.
Merkel's Christian Democrats mustered 24.0 only percent of the vote in the northeastern state on the Baltic Sea, a decline from the 28.8 percent they won five years ago.
The third-strongest party was the hard-line socialist Left party (Die Linke), with 17 percent.
The resurgent Greens scored 8.5 percent, ensuring their representation in the regional parliament for the first time. They had previously failed to clear the five-percent hurdle required to enter the parliament.
Negotiations will now take place over possible coalition arrangements.
Many analysts expect a continuation of the "grand coalition" of SPD and CDU that has governed the economically depressed state since 2006.
However, a coalition of the SPD and The Left, or even a three-way tie-up with the newly elected Greens, is also possible. The SPD has not declared which party it would rather form a coalition with.
Mecklenburg Western-Pomerania's current state premier, the SPD's Erwin Sellering, was tight-lipped after the results: "We will decide what is best for the
The neo-Nazi NPD appeared set to remain in the state legislature after the party benefited from low voter turnout of 53.5 percent. The far-right extremists managed to win 5.5 percent of the vote, down from 7.3 percent five years ago.
The pro-business Free Democrats failed to crack the five-percent hurdle to win any seats.