Lawmakers in Berlin's glass-domed Reichstag voted 364-315 with nine abstentions for Merkel who was then to be formally appointed by President Frank-Walter Steinmeier before taking the oath of office at 12pm.
Merkel, wearing a white blazer, said “I accept the vote” and beamed happily as applause filled the Bundestag chamber, where her scientist husband Joachim Sauer and her 89-year-old mother Herlind Kasner were among the well-wishers.
For the veteran leader, the ceremony marked the end of a painful stretch of post-election paralysis, the deepest crisis of her 12-year career.
A right-wing populist rise in September elections weakened all mainstream parties and deprived Merkel of a majority, forcing her into another unhappy alliance with the centre-left Social Democratic Party (SPD).
The grand coalition, mockingly dubbed a “GroKo” in German, didn't start as a “love marriage”, her designated vice chancellor and finance minister, the SPD's Olaf Scholz, drily observed this week.
All coalition partners have nonetheless sought to allay fears that their marriage of convenience could break up mid-term, insisting they plan to jointly govern until 2021.
In the afternoon, Merkel sits down with her new cabinet, in which the SPD has wrested both the trophy posts of finance and foreign affairs to the dismay of a growing band of critics within her Christian Democratic Union (CDU).
On Friday Merkel will head to Paris to discuss EU reform plans with French President Emmanuel Macron ahead of a March 22nd-23rd summit, after a six-month stretch in which Berlin was hamstrung on the European and world stage.
Macron warned in the Frankfurter Allgemeine Zeitung daily that, without Germany on board, “part of my project would be doomed to failure”.
“We are completely dependent on each other. I do not believe for one second that a European project without or against Germany could succeed.”
'Black zero' policy
Merkel's incoming coalition has broadly welcomed Macron's bold reform plans, meant to reinvigorate the bloc and counter extremists and populists who have made major gains in Western democracies.
She has argued that the EU must increasingly look after its own interests in the era of US President Donald Trump, who has questioned long-standing transatlantic defence ties and threatened a trade war.
Berlin advocates closer EU cooperation on defence, immigration and plans for a European Monetary Fund. But it is lukewarm on the idea of a joint eurozone finance minister and rejects any pooling of debt.
Scholz, who takes over from CDU fiscal hawk Wolfgang Schäuble, has made clear he will stick with Berlin's cherished “black zero” policy of avoiding new public debt.
The rise of populist fringe parties is also the central domestic threat for Merkel's new coalition, which will face the far-right Alternative for Germany (AfD) as the biggest opposition party.
The AfD scored almost 13 percent in the election, capitalising on public fears over a mass influx of more than one million refugees and migrants since 2015 and angrily demanding that “Merkel must go”.
'Need new answers'
The shock rise of the AfD has come at the expense of the CDU, its Bavarian CSU allies and especially the SPD, all of which suffered their worst results in decades in September.
While Merkel's last GroKo had a crushing 80 percent parliamentary majority, the margin has shrunk to 56 percent.
To answer the new right-wing threat, designated interior minister Horst Seehofer has pledged a “zero tolerance” law and order drive and faster deportations of failed asylum-seekers.
His new interior super-ministry also covers “Heimat” or homeland affairs, a term much derided for evoking Alpine vistas, beer and bratwurst but intended to recapture claims to patriotism from the AfD.
Scholz has meanwhile promised to tackle another fear exploited by populists, of vanishing jobs in the age of globalisation and rapid technological change.
“When we look at the Trump election, Brexit and the success of right-wing populist parties in many European countries,” Scholz said, “we see there is a clear need to find new answers to the challenges of the 21st century.”