The German leader said she “will not stand for re-election as head of CDU party” at the next party conference in December, according to local reports.
Angela Merkel, 64, has been CDU chairwoman since 2000 and giving up the role would start a race within the party to succeed her as chancellor.
It remains unclear whether Mrs Merkel will want to remain as the German Chancellor following the announcement.
It comes after Mrs Merkel’s Christian Democrats (CDU) came home first in Sunday’s election in the western state of Hesse but support fell by more than 11 points, reigniting a succession debate by conservatives unhappy with the chancellor’s grip on power.
Mrs Merkel’s Christian democrats and her SPD coalition allies saw support plummet.
According to German newspaper Spiegel Online Merkel was planning to run for the chairmanship in December but the party’s hammering in Hesse elections last night has apparently changed her mind.
The paper said: “CDU leader Angela Merkel will not stand again for the chairmanship of her party. This she announced after SPIEGEL information in the presidium meeting on Monday morning.
“According to her original plans, she wanted to compete again at the party congress in Hamburg in December.
“Merkel now draws consequences from the downward trend of the CDU, shown at the state election in Hesse.”
The CDU actually won the state election in central area of Hesse – but the party massively haemorrhaged support.
During the last Hesse election in 2013, CDU polled just 28 percent of the vote – down more than 10 percent from the 38.3 percent.
The euro fell to session lows on the news.
German news agency DPA, citing sources, tweeted that Mrs Merkel wanted to remain chancellor.
Mrs Merkel’s popularity has taken a battering after her open door policy saw more than one million African and Middle Eastern refugees arrive in Germany in 2015.
After huge losses in last year’s elections, Mrs Merkel this summer faced the biggest threat to her power when Horst Seehofer, who is her interior minister and leader of the Christian Social Union (CSU) leader, threatened to close Germany’s borders to migrants.
The German leader was forced into a corner when Mr Seehofer threatened to defy her wishes and order police to turn back asylum seekers unless she secured a broader EU deal on distributing migrants more evenly.
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