Both German Chancellor Gerhard Schroeder and his challenger Angela Merkel claimed victory in Sunday's election as exit polls show neither Merkel's alliance nor Schroeder's coalition won a majority to form a new government.

Speaking at a rally at the Social Democratic Party (SPD), Schroeder said that Germany will be "under my leadership" in the next few years.

Earlier his challenger Angela Merkel said she had "the a very clear mandate to govern" despite her bloc's failure to win a majority in the election.

Declaring that he would remain as the chancellor, Schroeder said Merkel is "arrogant" and too confident to say that.

Schroeder said that the Christian Democratic Union (CDU) failed "dramatically" in the election. "It is a disastrous result for CDU, " he said.

"We will begin coalition talks," he said. The chancellor ruled out forming a coalition with the Left Party, instead, he would seek cooperation with the Free Democratic Party (FDP).

"I regard myself as confirmed in office by our country and intend that there will be stable government under my leadership," he said.

SPD Chairman Franz Muentefering told a rally earlier that the result indicates that voters trust Schroeder, not Merkel.

"This is a personal defeat for Merkel," Muentefering said.

"Her dreams are shattered," the German TV ZDF was quoted by the German news agency DPA as saying.

However, addressing a rally at the headquarters of the CDU, Merkel said that CDU and its partner Christian Social Union are the strongest force in the parliament.

Despite the lack of a majority, the alliance has a "very clear mandate to govern," she said, vowing to seek cooperation with other parties.

The key now is in the hands of the FDP, which has a symbol color of yellow. Both CDU/CSU and SPD needs cooperation from FDP.

Schroeder's remarks mean there can be a red-green-yellow government and Merkel needs to seek a third partner to form a grand coalition.

According to the Forsa poll, CDU/CSU and its coalition partner, the FDP, won only 286 of the 598 Bundestag or parliament seats.

The poll showed that Schroeder's SPD wins 210 seats and its junior partner, the Green Party, won 51 seats. The Left Party also got 51 seats.

The ARD exit polls gave SPD 33.8 percent and the Greens 8.4 percent and CDU/CSU 35.7 percent and the FDP 10.5 percent. The Left Party was given 7.7 percent.

Source: Xinhua