At an SPD national conference here, Foreign Minister Frank-Walter Steinmeier, 52, was appointed the party's candidate to challenge Merkel next year.

He won 95 percent of the votes from 515 delegates, including former SPD chancellors Helmut Schmidt and Gerhard Schroeder.

Steinmeier, a grey-haired lawyer, has enjoyed high personal ratings in public surveys since becoming foreign minister.

The congress also elected Franz Muentefering as the new chairman of the party. He won 403 out of 475 votes at the meeting.

Muentefering, 68, is a legendary political figure in German politics. In November 2007, Muentefering, who had served as SPD chairman, vice-chancellor and labor minister, announced his retirement from public life to care for his dying wife, but returned to politics after the death of his wife.

The SPD forced out its unpopular chairman, Kurt Beck, last month, but is still trailing Merkel's conservatives by about 11 percentage points in recent polls.

Beck, who had been accused of being responsible for the falling popularity of the SPD, resigned at a meeting of the SPD national committee in September.

The SPD narrowly lost the general election in 2005, and was forced into a "grand coalition" with the CDU.

Over the past three years, the SPD has been in disarray for much of the time, squeezed between Merkel's compassionate conservatism on the right and a rising new far-left party led by ex-SPD chief Oskar Lafontaine.

The SPD hoped that the duo will be able to reverse the party's current downward trend in polls.

In an enthusiastic speech lasting over one hour and half at Saturday's meeting, Steinmeier hailed the unity of the party and called on the delegates to rally behind the party.

"We, the SPD, are back in the game," Steinmeier said amid thunderous applause from party delegates.

Steinmeier said his party has buried the differences from within, calling for higher morale of the party to tackle the upcoming challenges.

"That makes us strong, "said Steinmeier, adding that the party would win more and more trust from the people.

Steinmeier said the year 2008 would be written into the history books because of the financial crisis, and he tried to link Merkel's conservatives to the turmoil that has forced Berlin to launch a 500-billion-euro (US$685 billion) rescue plan for German banks.

"This upheaval we're going through is the biggest change since the Berlin Wall fell," he said.

"What is required is a comprehensive new start," he said.