Germany's Social Democrats (SPD) voted decisively for another coalition with Chancellor Angela Merkel's conservatives yesterday, clearing the way for a new government in Europe's largest economy after months of political uncertainty.

Two thirds of the membership voted "yes" to the deal -- a wider margin than many had expected -- meaning Merkel could be sworn in for a fourth term as early as the middle of the month in a repeat of the grand coalition that has governed since 2013.

The challenges are piling up for Merkel, who has been acting chancellor for more than five months since an inconclusive election, with the European Union looking for leadership on economic and security issues and France seeking a partner for President Emmanuel Macron's ambitious EU reform plans.

Macron hailed the development as "good news for Europe".

A statement from his office added: "France and Germany will work together on new initiatives in the coming weeks to bring the European project forward."

Acting SPD leader Olaf Scholz announced the result to applause from activists lining the balconies around the atrium of the party's Berlin headquarters early yesterday.

"We now have clarity: the SPD will join the next German government," Scholz said. The party had initially planned to go into opposition after its worst election result since Germany became a federal republic in 1949.

Merkel, in power since 2005, took to her party's Twitter feed to congratulate the SPD. "I look forward to working with the SPD again for the good of our country," she said.

The SPD ballot pitted the leadership of the centre-left party against the radical youth wing, which wanted the SPD to rebuild in opposition after a disastrous election showing.

"I'm happy it worked out this way," Andrea Nahles, the SPD's likely next leader, told Reuters.

Scholz declined to comment on reports that he would be finance minister.