The German political landscape had already changed previous year after the general elections in September when the oh-so-stable Germany saw the far-right party AfD enter the national parliament, the Bundestag, and witnessed coalition talks that failed after four weeks of negotiations, then had to wait months for a new government to form.
Earlier, the euro weakened to a two-month low after Merkel's beleaguered government faced a leadership crisis following an election in the state of Hesse, in which the coalition partners suffered substantial losses. She has chaired the Christian Democrat party (CDU) since 2000, and been chancellor of Germany since 2005.
She said she would not seek reelection as chancellor.
Merkel now governs Germany in a "grand coalition" of what traditionally have been the country's biggest parties - the CDU, Bavaria's conservative Christian Social Union, and the center-left Social Democrats.
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There are question marks over Seehofer's own future after a poor performance for his CSU in a recent Bavarian state election. She also acknowledged that it was an unprecedented move, but sees greener pastures for her party as well as the whole country.
Merkel has been heralded as both a hero and villain for her open-door refugee policy in Germany.
Incidentally, this call was echoed by the left-wing party Die Linke as its chief Katja Kipping criticized Merkel's decision to leave only the party leadership as inconsistent.
When Hesse last elected its state legislature in 2013 - on the same day that Mrs Merkel was triumphantly elected to a third term as chancellor - they won 38.3% and 30.7%, respectively.
"She was genuinely sad and not at all bitter and asked that the discussion about her succession be conducted in a kind manner", the source said, adding that Merkel's words were greeted with a standing ovation.
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It had been widely assumed that this would be Merkel's final term as chancellor, but before the reported remarks, she had not confirmed that herself.
In last year's general election Ms Merkel saw a drop in support and was forced to form a coalition with the centre-left Social Democrats following an inconclusive result.
Merkel has dragged the CDU to the political center in her years as leader, dropping military conscription, introducing benefits encouraging fathers to look after their young children, and abruptly accelerating the shutdown of Germany's nuclear power plants following Japan's Fukushima disaster in 2011. The Social Democrats, or SPD, had its worst loss since 1946.
Armed with Nahles's checklist, by September 2019 the SPD "will be able to see whether this government is still the right place for us", the party leader said in an implicit threat to the chancellor.
Increasing numbers of SPD members are calling for the party to quit government immediately and lick its wounds in opposition, as it is presently polling below AfD nationwide, at 15 percent to the far-right's 16 percent.
German Chancellor Angela Merkel to step down as party leader
Hesse's election was closely watched by analysts for signs of further dropping support for the CDU and SPD. Merkel had been widely expected to be reelected as CDU chief at a party congress in December.
That means Germany has lost some of its authority on the European stage just when the bloc faces some tough challenges including Brexit negotiations, an increasingly assertive Russian Federation and a more protectionist United States.