Mrs Merkel, who won an election with a reduced majority two weeks ago, said on Monday she would commence talks with two smaller parties on October 18.
Her CDU/CSU conservative alliance will first hold separate talks with the pro-business Free Democrats (FDP) and the left-leaning Greens on that day, before all parties would jointly meet two days later.
Merkel won a fourth term in the September 24 vote but the far-right Alternative for Germany (AfD) poached one million votes from her conservative bloc, leaving her without an obvious coalition to lead Europe's largest economy.
Merkel said in a speech on Saturday that the negotiations with the FDP and Greens would be "difficult", but added: "I hope the coalition will fall into place."
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Such an alliance – which would be unprecedented in Germany at the national level – has been dubbed the "Jamaica coalition" because the colours of the three parties match the black, yellow and green of the Caribbean country's flag.
On Sunday, the CDU and CSU agreed in 10 hours of talks on a compromise to set a benchmark of 200,000 refugee entries a year, removing a major hurdle before they enter into the wider coalition talks.
The CDU/CSU bloc scored 33 per cent in the September vote, its worst outcome since 1949, while the Social Democrats, Merkel's junior partners for eight years, were crushed with just over 20 per cent and vowed to go into opposition.
However, the election marked a breakthrough for the anti-Islam AfD which won 12.6 per cent, while the FDP won 10.7 per cent and the Greens 8.9 per cent.
