Both conservative leader Angela Merkel and the chairman of Chancellor Gerhard Schroeder's party said Monday they had initiated talks with potential coalition partners as they wrestled for control of the government.
Merkel urged her rival's Social Democrats to "accept that they are not the strongest group" in parliament and to enter talks on a broad right-left alliance under her leadership.
But within minutes, the chairman of the Social Democrats, Franz Muentefering, said his party would insist on Schroeder remaining chancellor and said he had invited other party leaders to hold talks on a new coalition.
"I have initiated contact with the offices" of the other parties, Merkel said. She added that she, like Schroeder, would refuse to hold talks with the Left Party - an alliance of ex-communists and former Social Democrats angered by the chancellor's efforts to trim the welfare state.
Muentefering said any linkup between his party and Merkel's would be without Merkel as chancellor. "The message was clear: this country does not want Mrs. Merkel as chancellor," he said.
Sunday's election denied a majority both to Schroeder's outgoing government of Social Democrats and Greens and to Merkel's preferred combination of her Christian Democrats and the pro-business Free Democrats.
Germany's benchmark stock market index and the euro dropped amid gloom over the muddled outcome, with business groups and economists saying the country needs decisive action to fix its underperforming economy.
Schroeder refused to back off his claim to form a new coalition, saying his party "has made clear its will to lead this country in government."
Muentefering said the Social Democrats' claim to be the strongest party resulted from the division between Merkel's Christian Democrats and the CSU. However, the two parties have always had a single parliamentary group, fielded a joint candidate for chancellor and campaigned together.
"I do not rule out anybody revising their position," Merkel said of Schroeder, adding that a new government should be formed quickly. "We are not playing for time."
However, conservative leaders said they also would seek talks with the Greens on a three-way combination that would include the Free Democrats - receiving a cool reaction. Foreign Minister Joschka Fischer, who led the Greens' campaign, said he would not serve in a Merkel Cabinet.
Merkel likely will have to water down plans to shake up Germany's labor market and reform its tax system to gain a majority with a party to her left. To woo the Greens, she likely would have to soften plans to halt the outgoing government's program of shutting down nuclear power plants. Her opposition to Turkish membership in the European Union was also up in the air, the AP reports.