The agreement on a blueprint between party and parliamentary leaders for formal negotiations could pave the way for terminating months of political uncertainty in Germany which were in existence post the September polls.
On Thursday, Merkel had said that the talks would be "tough" but that she was hopeful that the parties would conclude the preliminary round by Friday, reported the local media.
After 24-hours of talks, the six leaders began presenting the 28-page blueprint to party members.
Social Democratic Party (SDP) Martin Schulz had previously ruled out entering into another "grand coalition" with Merkel after his party suffered its worst ever result in the federal elections in September.
Merkel has ruled with the SPD in two of her three terms in office, including in the last parliament from 2013-2017. A re-run of their partnership is not yet certain, according to the reports.