Voters turned out in droves to reward Merkel, often called the world's most powerful woman, with another four years at the helm for steering them unscathed through the debt turmoil that engulfed the eurozone's southern flank.
But in one of the tightest races in German history, they punished her pro-business partner, the Free Democrats (FDP), kicking them out of parliament for the first time since 1949, according to preliminary results on two public television networks.
Merkel's stunning 42.5 percent score - the conservatives' highest result since national reunification in 1990 - means that she may become the only chancellor to govern without a junior partner since Germany's first post-war leader, Konrad Adenauer.
"Together we will do everything in the next four years to again make them successful years for Germany," Merkel told cheering members of her Christian Democratic Union (CDU) in Berlin.
"The party leadership will discuss everything when we have a final result but we can already celebrate tonight," a beaming Merkel told supporters, including her chemist husband Joachim Sauer, a music fan who so rarely appears in public he is nicknamed "The Phantom of the Opera".
An upstart anti-euro party, AfD, appeared to fall just short of the five-percent hurdle to representation with their bid to tap into anger over German contributions to bailout packages for stricken eurozone partners.
Exit polls had initially pointed to an awkward left-right "grand coalition" between Merkel's Christian Democrats and their traditional opponents, the centre-left Social Democrats (SPD), which scored around 26 percent.
Merkel led a fractious grand coalition during her first term in 2005-2009, with the SPD's chancellor candidate this time around, Peer Steinbrück, as her finance minister.
Political scientist Nils Diederich said Merkel had a tendency to bleed her coalition partners dry.
"You can compare Ms Merkel to a spider that feeds on the flies it captures," he told AFP. "That is what she did to the Social Democrats in 2009 and that is what she is doing now with the FDP."
A physicist by training, Merkel is only the third person to win a third term in Germany after Adenauer and Helmut Kohl, the father of German unity.
If she serves at least until 2017, she will become Europe's longest serving female leader, besting Margaret Thatcher who was Britain's prime minister for 11 years.
While Merkel became Germany's most popular post-war chancellor, the eurozone crisis laid waste to the careers of leaders in hard-hit countries such as Ireland, Portugal, Italy, Greece, Spain and France.
A landslide for Merkel's eurozone strategy
In contrast to Merkel's austerity-driven response to the eurozone crisis, the SPD called for a bit more generosity and patience with nations as they pay back their debts.
But voters handed Merkel a landslide, fully endorsing her strategy of demanding biting reforms in exchange for funding bailouts.
The near success of the AfD, which advocates ditching the single currency mand an "orderly dissolution" of the 17-member eurozone, sent a jolt through German politics, where a eurosceptic party has never gained a foothold.
In a last-minute appeal for votes at a Berlin rally Saturday, Merkel had urged voters not to succumb to the AfD's siren call. "The stabilization of the euro is not just a good thing for Europe but it is also in Germany's fundamental interest," she said.
Nearly 62 million people were called to the polls after a campaign many voters complained was largely superficial and personality-based.
Economic growth is steady, unemployment at below seven percent – its lowest level in two decades -- and the political culture is dominated by a long post-war tradition of consensus rather than red-blooded jousting.
That left few issues to separate the main candidates. "I think we have a good standard of living in Europe, and for me, this must
remain stable. So, to me, voting for the extremes, on the left or the right, isn't an answer," Sister Elisabeth Bauer, a nun, told AFP as she cast her vote in Berlin.
The ecologist Green Party, the SPD's preferred coalition partner, scored around a disappointing eight percent in Sunday's poll.
And the far-left Die Linke, which has roots in former East Germany's ruling communist party, also tallied about eight percent but the SPD has repeatedly ruled out forming a coalition with it at the national level.
The brash, gaffe-prone Steinbrück stumbled again in the home-stretch of the campaign with a front-page magazine photo of him making a surly middle-finger reply to a question on his limping candidacy.
He had zeroed in on a growing low-wage sector, but it was not enough to dislodge Merkel from the top job.
"The SPD did not lead a campaign devoid of content," Steinbrück said late Sunday in a jab aimed at Merkel. "But we did not achieve the result we wanted."