Germany's Social Democrats beat Angela Merkel's conservatives in a closely-watched state poll Sunday, dealing a blow to the chancellor as she heads into thorny coalition talks to form a national government.

In the state vote in Lower Saxony, home of Volkswagen, Martin Schulz's Social Democrats (SPD) clinched 37 to 37.5 percent of the vote, followed by Merkel's CDU at 35 percent, according to early results reported by public broadcasters ARD and ZDF.

The far-right AfD scored 5.5 percent, meaning it now holds seats in 14 of Germany's 16 regional parliaments.