Her Bavarian sister party, the Christian Social Union (CSU), is now engaged in a bitter struggle for power.
Rebels in the party have attempted to seize control from leader Horst Seehofer, a key Merkel ally.
And they now want Markus Soder to head up the party, a man who is less keen on the Chancellor’s immigration policy, according to the Telegraph.
The rebels are calling for a non-binding vote to be held next Monday on who should lead the CSU.
If defeated, Mr Seehofer would be so badly damaged he could be forced to resign.
And that could be a major blow for Mrs Merkel who has been trying to negotiate a coalition deal ever since her election disaster two months ago.
Her first attempt at a three-way partnership with the pro-business FDP and Green party eventually collapsed over immigration.
She is now hoping to rekindle a grand coalition with former partners the SPD.
Even if she did manage that, Mrs Merkel would still need the support of her CSU allies to keep control of the German Government.
The SPD, which governed in coalition under Mrs Merkel since 2013 and suffered its worst election result in postwar history, had previously been strongly opposed to another grand coalition.
But under pressure from President Frank-Walter Steinmeier, SPD leader Martin Schulz has changed tack and signalled his willingness to discuss a way out of the political impasse.
A joint meeting will be held this evening between Mrs Merkel, Mr Seehofer and Mr Schulz as part of efforts to facilitate the formation of a stable government.
Health Minister Hermann Groehe, a senior member of Mrs Merkel’s Christian Democrats (CDU) said today: “I recommend to all of us that we should not complicate the efforts to find a stable form of cooperation by publicly drawing red lines.”
But the CDU’s business wing has called on Mrs Merkel to “seriously consider” a minority government.
It warned a re-run of a coalition with the SPD would only be possible for the price of “even more unaffordable promises” in social policy.
The atmosphere ahead of the talks has already been soured, however, by a fierce dispute between cabinet colleagues over a European Union licence for a weedkiller.
Conservative Agriculture Minister Christian Schmidt angered the SPD on Monday by backing an EU proposal to extend the use of glyphosate in the bloc for another five years, a measure opposed by the SPD.
In reaction, SPD members have called for compensation and set various policy conditions.