Berlin – Angela Merkel is set to take the reins of her fourth term as German chancellor after members of the centre-left Social Democratic Party (SPD) voted in favour of joining her conservatives in another grand coalition.

The SPD decision, announced on Sunday, brings back stability to Europe's most populous country and largest economy, which has been stuck in political paralysis since elections were held on September 24.

Germany as a European driving force

"It's good news for Europe," said French President Emmanuel Macron after the SPD announcement.

Macron was elected last year on an unapologetically pro-EU platform, but without a government in Berlin able to fuel Europe's Franco-German motor, he hasn't been able to push through key reforms at the EU-level.

The French leader has touted EU measures such as converting the eurozone bailout fund into a European Monetary Fund and appointing a finance minister for the currency bloc, but his ideas have largely languished since the German elections in September.

"I'm convinced that the [German] federal government can be a driving force of the European project," said Belgian Prime Minister Charles Michel in a statement after the SPD vote. "It's imperative not to waste any time!"

Progress in migration, security and economy

Alongside other EU member states, progress needs to be made on migration, security and strengthening the European economy, he added.

Many key portfolios in Merkel's cabinet will go to the staunchly pro-European SPD - notably the finance and foreign ministries.

The coalition text between Merkel's conservative Christian Democratic Union's (CDU), its Bavarian-based Christian Social Union (CSU) sister-party and the SPD includes many buzzwords on Europe and plans to increase EU budget contributions, suggesting that Germany will soften its hardline fiscal stance in Europe.

The SPD said Sunday that rank-and-file members voted in a postal ballot by 66 per cent to back a deal hammered out with Merkel.

Just over 78 per cent of the SPD's 463,722 registered members who were eligible to vote cast valid ballots.

The coalition will be the third such arrangement for the three parties under Merkel since 2005. The vote comes 161 days after the elections, ending the longest coalition-formation period in post-war Germany.

Merkel's fourth term as chancellor

The SPD's decision to form a coalition with the CDU and CSU also makes the anti-immigration and eurosceptic Alternative for Germany (AfD) the largest opposition party in the German parliament, the Bundestag.

Merkel's attempt to form a new grand coalition with the SPD was launched after her bid to form a so-called Jamaica coalition with the Greens and the pro-business Free Democrats (FDP) collapsed in November.

The SPD youth wing, the Jusos, under the leadership of Kevin Kuehnert, had campaigned for a no-vote, insisting the party go into opposition to regroup after falling to its worst electoral performance since 1932.

The Bundestag is set to convene on March 14 to vote in the new chancellor – certain to be Merkel. This will be her fourth term as chancellor.