In a final head-to-head TV debate with centre-left Chancellor Olaf Scholz before Sunday's general election, Merz warned that it's the last chance to halt the surge of the Alternative for Germany party.
"In the next four years we must solve two big problems for this country: migration and the economy," Merz said, warning that otherwise "we will definitively slide into right-wing populism".
Scholz said that if re-elected he would continue efforts to deport foreign criminals but also said deadly attacks such as a car-ramming last week in Munich must not be allowed to "divide society".
The anti-immigration AfD -- backed strongly by the inner circle of US President Donald Trump -- looks set for its best-ever result of around 20 percent, according to current polling.
Merz said "extreme right-wing parties have become strong all over Europe. We see Brexit, we see what happened in the USA."
He called for greater efforts to win back voters' confidence "so they don't listen to those who divide and agitate".
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The immigration debate has been inflamed by a spate of deadly attacks blamed on migrants, most recently in Munich where two people were killed, including a two-year-old girl.
Merz said he would demand a shift to a more restrictive migration policy in any coalition and pointed to neighbouring Denmark where such measures saw off the far-right.
Ukraine and Trump
Merz's CDU/CSU alliance is leading polls on around 30 percent -- double the support for Scholz's Social Democrats (SPD) or the Greens -- but will likely need at least one of them as a coalition partner.
The process could take weeks and has been complicated by the rise of the AfD and smaller parties that could make it into parliament.
Merz again insisted he would never form a coalition with the AfD, despite relying on their support in a parliament vote last month to pass a resolution demanding tougher immigration rules.
The move sparked protests against a breach of the "firewall", the long-standing refusal of mainstream parties in a country haunted by its Nazi past to cooperate with extremist parties.
The Welt TV debate covered other hot-button topics such as the high cost of living and Germany's moribund economy but largely avoided foreign policy issues such as the war in Ukraine.
Scholz did say that the "Russian aggression against Ukraine" was one of the issues that kept him up at night.
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"We are all thinking about what the next developments will be and how to deal with the new American government," he said as Trump has shaken Ukraine in its European allies through his direct talks with Russia.
Scholz earlier Wednesday said Trump's description of Ukrainian President Volodymyr Zelensky as a "dictator" was "wrong and dangerous".
The pilot vs the rower
The debate ended on a lighter note between the election rivals when the moderator asked Scholz if he would be comfortable stepping aboard a plane flown by Merz, a hobby pilot.
The chancellor said he would, adding drily: "I assume he deserved to get his pilot's license."
Merz chimed in that he would be happy to take his rival -- preferably "from Berlin to his home in Hamburg," the northern port city where Scholz long served as mayor.
Merz was then asked if he would step into a boat with hobby rower Scholz and quipped "yes, because I'm a good swimmer, even without a safety vest".
Scholz –- whose SPD may yet end up as the conservatives' junior partner – said that "when two people row, both row" but said it was important that both "trust each other in the boat".
By Jastinder Khera with Sam Reeves in Frankfurt
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