Conservative challenger Angela Merkel's party won the most votes in Germany's general election on Sunday, but the victory was so narrow that Chancellor Gerhard Schroeder refused to concede defeat, which plunged the country into political uncertainty.

With 298 of 299 districts counted, initial official results on Monday showed Merkel's Christian Democrats Union (CDU) led with 35.2 percent of the vote compared to 34.3 percent for Schroeder's Social Democrats (SPD).

The outcome gave the CDU and the Christian Social Union (CDU/CSU) led by Merkel 225 seats, three more than the SPD; the Free Democratic Party (FDP) got 61, the Left Party 54 and the Greens 51.

The result coincides with Polls which showed that the bloc of Merkel would have won a slim majority to replace Schroeder.

But the outcome is widely regarded as a failure for Merkel, who only weeks ago seemed to be cruising to an easy win.

Both Schroeder and Merkel claimed victory in the election and vowed to form a government with a third party.

Earlier, Merkel said she had "a very clear mandate to govern" despite her bloc's failure to win a majority in the election.

However, Merkel admitted that her party could have done better in the election and the outcome is "disappointing."

Declaring that he would remain as the chancellor, Schroeder said Merkel is "arrogant" to announce that she would form a new government.

He said the CDU failed "dramatically" in the election. "It is a disastrous result for CDU."

Speaking at a rally at the SPD headquarters, Schroeder said Germany will be "under my leadership" in the next few years.

"I regard myself as confirmed in office by our country and intend that there will be stable government under my leadership," he said.

"We will begin coalition talks," he said. The chancellor ruled out the possibility of forming a coalition with the Left Party and would instead seek cooperation with the Free democrats.

SPD Chairman Franz Muentefering told a rally earlier that the result indicates that voters trust Schroeder, not Merkel.

"This is a personal defeat for Merkel," Muentefering said.

However, addressing a rally at the headquarters of the CDU, Merkel said the CDU/CSU is the strongest force in parliament, and the alliance has a "very clear mandate to govern." She also vowed to seek cooperation with other parties.

A DPA report blamed the Left Party, which got 8.7 percent as the "key spoiler" in the election.

The key now is in the hands of the FDP, which has a symbol color of yellow. Both the CDU/CSU with a symbol color of black and the SPD needs cooperation from the FDP.

Theoretically there are now four possible coalitions, but all the four will realistically be very difficult.

-- Red-Green-Yellow: The current SPD-Green government set up a traffic-light with the FDP. But the FDP has rejected cooperation with the SPD-Green alliance.

-- Red-Red-Green: the SPD-Green cooperate with the Left Party. Schroeder ruled out a coalition with the party composed of former eastern German communists and renegade Social Democrats.

-- Black-Yellow-Green: The CDU/CSU and FDP alliance will form a government with the Green Party, which is now a ruling party with the SPD.

-- Grand coalition: The CDU/CSU and the SPD would sit together to form an absolute solid majority. Many pollsters said prior to the voting that such a coalition could be the outcome.

The final result of the election will not be known until Oct. 2 when voters in a district of the eastern city of Dresden cast their ballots.

The election in Dresden, which was delayed due to the death of a neo-Nazi candidate, accounts for two, or possibly three, seats.

Schroeder forced through the election a year ahead of schedule in an attempt to obtain a fresh mandate for his controversial economic reforms.

Merkel, a former physicist from East Germany, campaigned on a message that only the Christian Democrats and the FDP could drive down a crippling unemployment rate of 11.4 percent and get the economy moving again.

(Xinhua News Agency September 19, 2005)