Merkel's triumphant conservative Christian Democrats (CDU) fell just a few seats short of their own majority with 41.5 percent of the vote, according to provisional final results.
The 59-year-old leader resoundingly clinched another four-year stint at the helm Europe's top economy, and looked poised to form a "grand coalition" with her chief rivals, the Social Democrats (SPD).
Voters turned out in droves to reward Merkel, often called the world's most powerful woman, for steering them unscathed through the debt turmoil that engulfed the eurozone's southern flank.
But they punished her pro-business junior partner, the Free Democrats (FDP), who have been plagued by power struggles, kicking them out of parliament for the first time since their founding after World War II with 4.8pc of the vote.
Merkel's stunning score - the conservatives' best result since the country's joyous reunification in 1990 -- meant that she nearly became the only chancellor to win an absolute majority since Germany's first post-war leader, Konrad Adenauer, 56 years ago.
"The party leadership will discuss everything when we have a final result but we can already celebrate tonight," a beaming Merkel told supporters, including her chemist husband Joachim Sauer, a music lover who so rarely appears in public he is nicknamed "The Phantom of the Opera".
Overall turnout was 73 percent, up more than two points from 2009.
An upstart anti-euro party, AfD, fell just short of the five-percent hurdle to representation with their bid to tap into anger over German contributions to bailout packages for stricken eurozone partners.
The Social Democrats scored under 26 percent - their second worst result since the war - and the FDP at 4.8 percent.
Political scientist Nils Diederich of Berlin's Free University said Merkel had a tendency to bleed her coalition partners dry.
"You can compare Ms Merkel to a spider that feeds on the flies it captures," he told AFP as the results rolled in.
"That is what she did to the Social Democrats in 2009 and that is what she
is doing now with the FDP."
A physicist by training, Merkel is only the third person to win a third
term in Germany after Adenauer and Helmut Kohl, the father of German unity.
If she serves at least until 2017, she will become Europe's longest serving female leader, besting Margaret Thatcher who was Britain's prime minister for 11 years.