The referendum for more than 460,000 members of the crisis-hit SPD is the last hurdle for veteran leader Merkel as she seeks to form a new government, five months after an inconclusive election.
If the rank-and-file of the 153-year-old labour party give the thumbs up - with the results to be announced on March 4 - Merkel is set to launch her fourth-term government within a few weeks.
Despite weeks of turmoil and bitter infighting, the SPD leadership is hopeful its members will back the proposal for a continuation of the current right-left "grand coalition" government, known in German as the "GroKo".
But the outcome is far from certain, given the volatile mood in the party which scored its worst post-war result of just 20.5 per cent in the September 24 election.
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The SPD's youth and left wings are driving a passionate #NoGroKo campaign, arguing that the party must rethink what it stands for and rebuild as a combative opposition force.
The party's ratings are in freefall, with the latest polls giving it just 15.5 per cent support - narrowly behind the far-right, anti-immigration Alternative for Germany (AfD) party.
Merkel's conservative CDU/CSU bloc remained the strongest political force with 32 per cent support.
The AfD cheered having polled as Germany's second strongest party, and its parliamentary leader Bernd Baumann vowed the populists were now training their sights on "our next target, the CDU".
The tabloid also ran a mocking front-page report on how the SPD had been tricked into approving the membership application of a dog and had mailed brochures and invitations to its owner's address.
An SPD spokesman said the party was looking to cancel the "fake membership".
Amid the political chaos, Germany -- long seen as a bulwark against populism, in part due to its Nazi past -- is now experiencing the tectonic shift of mainstream parties in decline long observed in other Western democracies.
The populists won almost 13 per cent of the vote with their angry demand that "Merkel must go" and their protests against the two establishment parties which, they argue, have effectively merged into a GroKo mega-party.
"Something is coming to an end in Germany: the age of the traditional big parties," news weekly Der Spiegel said in its latest editorial, stressing that Merkel's CDU faces the same change, albeit less dramatically.
"The trend has reached Germany relatively late," the magazine added, pointing to the Netherlands, Belgium and France, where President Emmanuel Macron has "swept away the old party system".
Hajo Funke, a political scientist at Berlin's Free University, said this did not mean a drift into extremism in Germany.
He said the AfD's recent poll gain was largely due to "the disaster seen at the SPD at the moment" and that its appeal would wane because many protest voters reject its "increasing radicalisation".
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