Chancellor Angela Merkel's conservatives stood neck-and-neck with the rival Social Democrats (SPD) in an election in the German state of Schleswig-Holstein, projections showed on Sunday, pointing to weeks of tough coalition talks to form a government.

German TV network ARD projected Merkel's Christian Democrats (CDU) on 30.6 percent, their worst result in the state since 1950, and the SPD on 29.9 percent based on exit polls after the voting stations closed at 6 p.m. (1600 GMT). The result would give both parties 22 seats in the 69-seat assembly.

The unclear outcome in the northern state of 2.8 million people bordering Denmark, means a large number of coalition options possible, including a "grand coalition" of the two big parties or three-way governments involving smaller parties.

Perhaps the most likely of those is what Germans have dubbed a "Danish traffic light" coalition of the SPD, Greens and the South Schleswig Party (SSW), representing the state's Danish minority.

"This is our goal," SPD lead candidate Torsten Albig told German public television. "If that doesn't work we'll see what other coalitions are possible."

The environmentalist Greens stood at 13.6 percent, and the unconventional Pirates, who stormed onto the political scene last year, polled 8.1 percent, enough to enter their third straight regional assembly.

Merkel's resolute stance through the dramas of the euro zone crisis has left her personal popularity intact. But her national centre-right coalition has looked in jeopardy after a slump in public support for her junior coalition partners, the Free Democrats (FDP), due to their infighting and prickly leaders.

The FDP, who have dropped out of five state assemblies up and down the country, rebounded however to make it back into the Schleswig-Holstein assembly with 8.3 percent of the vote.

Merkel wants to win a third term in power in 2013 and press on with her drive to instill German-style budget discipline across the ailing euro zone. But she will likely have to find new allies for her Christian Democrats (CDU) next year.

If her party proves the largest party in Schleswig-Holstein it would give the CDU vital second wind, at a sensitive time for the chancellor.