The Social Democrats and the Greens won a single-seat majority in the state legislature, a region of eight million people in north-western Germany.

The election is seen as a bellwether for national elections in September.

The Lower Saxony defeat has set alarm bells ringing for the chancellor, says the BBC’s Steve Evans in Berlin.

Mrs Merkel’s CDU coalition has lost a number of state elections as she seeks a third term as Germany’s chancellor.

Scottish roots

Sunday night’s knife-edge finish saw the SPD and Greens winning a combined 46.3% of the vote to the centre right’s 45.9%.

David McAllister, the incumbent leader of Lower Saxony’s government and close ally of Chancellor Merkel, had been hoping for re-election.

He was born in Berlin to a German mother and a Scottish father and is seen as a possible successor to Chancellor Merkel as CDU leader.

The Social Democrats (SPD) enjoyed a comfortable lead over the incumbents in the run-up to the poll, but it evaporated as polling day approached.

The SPD leader in Lower Saxony, Stephan Weil, said before the result that a victory in the state polls as a sign that his party will be taken seriously in September’s national elections.

Since Mrs Merkel’s re-election as chancellor in 2009, the CDU has suffered setbacks in recent state elections, and have lost power to the SPD and Greens in four other states.

There was also concern that the CDU’s coalition partners, the Free Democrats, would not win enough votes to maintain the coalition.

They require 5% of the vote to gain seats in the state legislature – exit polls suggested they had 10%.

Ms Merkel appeared several times on the campaign trail with Mr McAllister, who has played heavily on his Scottish roots.

Known as “Mac”, he used bagpipes in his election broadcasts. He speaks English with a broad Scottish accent.