Exit polls broadcast by German broadcaster ARD show Ms Merkel’s conservative Christian Democrats (CDU) came first with 28 percent of the vote – a stark difference to the 38.3 percent it won in 2013.
The Chancellor’s coalition allies, the SPD, won 20 percent – down from 30.7 percent from 2013 election.
Meanwhile, opposition parties appear to have made huge gains.
The ecologist Greens narrowly missed out on second place with 19.5 percent of the vote, according to the exit poll.
And the right-wing AfD looks set to enter the Hesse regional government for the first time after securing 12 percent of the vote.
The regional government in Hesse, which includes the financial hub of Frankfurt, is currently controlled by a coalition of Ms Merkel’s CDU and the Greens, and it appears the two parties could continue governing.
But the preliminary results will pile pressure on the Chancellor’s ‘grand coalition’ in Berlin, which is made up of the CDU, its Bavarian sister party the CSU, and the centre-left SPD.
The reluctant alliance was formed after months of failed talks and its stability has been tested after a series of public rows between high-level figures in recent months.
The Hesse election comes at a time when a growing number of SPD members are calling for the party to pull out of the coalition to reinvent itself as an opposition group and distance itself from Ms Merkel.
But such a move could cause the collapse of the government in Berlin and spark fresh federal elections.
This is a breaking story. More to follow…