German Chancellor Angela Merkel has been re-elected with a commanding victory in federal elections.
Her CDU/CSU bloc is in coalition talks with the pro-business Free Democrats, led by Guido Westerwelle, right.
The Free Democrats scored their best vote ever and are likely to push for bold reforms and quick tax cuts to help lift Europe's biggest economy out of its worst crisis in 60 years.
As exit poll results flashed up on screens, as soon as polling booths closed, conservative CDU supporters in Berlin erupted with joy.
The Social Democrats, meanwhile, were shocked at the scale of their heavy defeat - their worst result in 60 years.
Millions of Germans cast ballots during Sunday's vote, which came after four years of government by a grand coalition between the centre-right CDU and centre-left Social Democrat SPD.
The Social Democrat leader Frank-Walter Steinmeier, who has served as foreign minister in the grand coalition, was quick to acknowledge his "bitter defeat".
Mrs Merkel made clear the new coalition should be in place at the latest by 9 November, when Germany marks 20 years since the fall of the Berlin Wall.
The campaign focused mainly on the economic challenges facing Germany, and was often described as bland.
Correspondents say the chancellor's personal popularity, and her steady leadership during the economic downturn, laid the foundation for her significant victory.
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