- Video report by ITV News Europe Editor James Mates
Angela Merkel has won a fourth term as the German chancellor in an election that saw her party perform worse than expected and the hard right enter Parliament for the first time in decades.
Final results showed that Merkel's Christian Democratic Union (CDU) and their Barvaria-only allies, the Christian Social Union, was the largest party with an estimated 33% of all ballots - significant fall from the 41.5% they won four years ago.
The biggest winners at the polls was the nationalist and anti-migrant Alternative for Germany (AfD) which finished third with 12.5%.
The four-year-old party's campaign focused on criticising Ms Merkel and her 2015 decision to allow large numbers of migrants into Germany, and also on wider discontent with established politicians.
Migration was among the key issues for many Germans as the country went to the polls on Sunday.
Ms Merkel faces yet more complications after her current coalition party said they would refuse to enter another Government after they suffered a "crushing election defeat" with their worst result since World War II.
The centre-left Social Democrats took only 20.5% of the vote, down from 25.7% in 2013.
The party's leader, Martin Schulz, vowed to take the junior partner in Ms Merkel's outgoing "grand coalition" of Germany's traditionally dominant parties into opposition, saying that it was "completely clear that the role the voters have given us is as the opposition".
Mr Schulz vowed to go into opposition, stating that this role could not be filled by third place AfD.
In a subdued victory speech, Merkel said she had a mandate to form a government but vowed to win back voters from the anti-immigrant Alternative for Germany party (AFD) by listening to voters concerns.
Merkel was greeted by cheering supporters as she made a victory speech saying she would start work to form a new government.
She added that it wasn't a "matter of course" to finish first after 12 years in power, and that the past four years were "extremely challenging".
Stressing that "we live in stormy times" internationally, she declared: "I have the intention of achieving a stable government in Germany."
She conceded that "of course we would have preferred a better result, that's completely clear".
Despite the AfD finishing in third place, all mainstream political parties have ruled out working with them.
Ms Merkel's conservatives have also said they will not form a coalition the Left Party which finished in fifth place with 9.2% of the vote, behind the pro-business Free Democratic Party which took 10.7% and will return to the Bundestag after a four-year break.
That means two politically plausible governments are feasible: a continuation of the "grand coalition" between the CDU and the Social Democrats - as has been the case for the last four years - or a combination of Ms Merkel's Union bloc, the Free Democrats and the Greens.
"This is a big day in our party's history," said co-leader Alexander Gauland.
He continued: "We have entered the Bundestag and we will change this country" by "taking" it back.
The AFD had led an aggressive campaign dominated by hostile slogans against the more than one million mostly Muslim migrants who arrived in Germany in the last two years.
They aimed to grab votes from conservatives who in the past have voted for Merkel's party, but are unhappy with her welcoming stance toward refugees.
Meanwhile, Ms Merkel said that she would seek to form a new coalition instead of aiming for a minority government.
Asked on German public television whether a minority government of just her own conservative Union bloc is conceivable, Merkel replied: "I don't see it. I have the intention of achieving a stable government in Germany."
She is likely to turn to the Free Democrats and Greens in an effort to form a new coalition Government.
Following the vote, hundreds of anti-AFD demonstrators descended upon the club where the nationalist party's leaders were celebrating their third-place finish.
Shouting "All Berlin hates the AfD!" ''Nazi pigs!" and other slogans on Sunday, several protesters threw bottles as police kept them away from the building in Berlin.
Mainstream German political parties had campaigned to voters not to back the AFD in the run-up to the vote.
The Social Democratic Party tweeted on Sunday: "The AFD is a right-wing extremist party that doesn't belong in Parliament. Talk to your friends and relatives. And get voting!"
AFD's Frauke Petry, a party chairwoman, fired back in a tweet of her own: "Live with it comrades, the trend to the left is over today."
The Greens also targeted the AfD, saying "For integration and tolerance! For a clear YES to a strong Europe! Against right-populism and AFD!"
Pollsters have said many of the 61.5 million Germans who were eligible to vote had remained undecided until the very last moment.