Chancellor Angela Merkel won a historic third term in office with an overwhelming victory for her ruling conservative Christian Democrats in Germany’s general election on Sunday night after securing huge gains.

The German Chancellor’s Christian Democrats (CDU) romped home with over 41 per cent of the vote – an increase of 8 per cent over Germany’s last general election in 2009. They now command 311 seats in the Bundestag - just five short of an absolute majority.

But the election brought a humiliating defeat for Ms Merkel’s pro-business, liberal Free Democrat (FDP) coalition partners for the past four years. They were ousted from the German parliament for the first time since 1949 after one of their worst election performances on record, securing just 4.8 per cent of the vote.

“It is our worst performance since 1949,” admitted the FDP spokesman Christian Lindner.

“From tomorrow on, we will have to redefine the German liberal party,” he told Germany’s ARD television channel.

Ms Merkel now faces the prospect of forming a coalition government with the opposition Social Democrats, who have 192 seats, or even the environmentalist Greens, who ended the night with 63 seats.

The recently formed anti-euro party, Alternative for Germany, obtained 4.7 per cent of the vote, a hair’s breadth away from the necessary 5 per cent needed to win seats.

A triumphant Ms Merkel, who is now set to eclipse Margaret Thatcher as Europe’s longest serving head of government, appeared before hundreds of jubilant party supporters at Christian Democrat party headquarters in Berlin.

Wearing a conservative blue jacket and smiling broadly she told them, “This is a super result – thank you to all voters who gave us this overwhelming victory. We will do everything we can to make the next four years a success for Germany.”

The result was seen as a boost for David Cameron and his plans to win back powers from Brussels before holding a referendum on Britain’s membership of the European Union. Ms Merkel is an ally who favours limiting the powers of the European Commission and increasing those of national EU governments.

Wolfgang Schäuble, Ms Merkel’s veteran conservative Finance Minister, said that the result ensured that Germany would “keep Europe together. We won’t do this by throwing our weight around; we will do it reliably and responsibly,” he insisted.

Armin Laschet, a senior CDU MP, described the result as a “ringing endorsement” for Ms Merkel, who remains one of Germany’s most-liked post-war chancellors on record.

Ms Merkel’s huge popularity dominated the poll which many commentators described as one of the most boring German general elections on record. The Chancellor’s campaign focused largely on herself. She deliberately avoided discussion about the eurozone crisis and the burden it could exact on German taxpayers. Her critics accused her of lying to voters and “ running scared” of the electorate.

The main opposition Social Democrats led by their gaffe-prone candidate, the former economics minister Peer Steinbrück, won just over 26 per cent of the vote. They left open whether they would join a grand coalition with Ms Merkel’s conservatives.

The Greens, who had run an unpopular campaign demanding tax increases, suffered a major setback by winning only 8 per cent of the vote.

The fights ahead: Merkel's in-tray

Despite the convincing mandate handed to her by voters in yesterday’s general election, Angela Merkel faces tough challenges in what will be her third and possibly final term as Germany’s first woman leader.

The EU crisis remains her main political headache. She still has to come clean and explain to German taxpayers the extent to which they will be asked to contribute to current and future eurozone bailouts. Failure to be explicit on such questions will play into the hands of Germany’s new anti-Euro party- Alternative for Germany.

In Germany Ms Merkel is already under fire for miscalculating the cost of her decision to abandon Germany’s dependence on atomic power in the wake of the Fukushima nuclear disaster. Her government faces charges that Germany’s plans to rely exclusively on green energy sources is destined to backfire and cost consumers millions.

She will also be under pressure to define more clearly Germany’s position on the world stage and its stance on key areas of international tension such as Syria. Ms Merkel faces criticism at home for increasing German arms exports to the Middle East while failing to adopt a more pro-active foreign policy role.