Germany's Martin Schulz said on Thursday he would step down as head of the European Parliament and return to national politics, where analysts say he could emerge as a rival to Angela Merkel.

The outspoken former bookseller from Aachen will quit after four years in office, during which he became one of the European Union's most high-profile politicians and gave its assembly sorely-needed visibility.

The bearded 60-year-old did not say if he would run for chancellor against Merkel, although he is widely expected to slot into a prime position for the Social Democratic Party (SPD), which is currently in coalition with her.

"I will not run as president of the European parliament for a third term next year, I will run for the German Bundestag as the head of the list of my party, the SPD, in North Rhine-Westphalia," an emotional Schulz told reporters in Brussels.

"It was not an easy decision, as it is an honour to be the president of the European parliament."

- Nazi jibe -

Schulz is tipped in Berlin as a possible replacement to Vice Chancellor Sigmar Gabriel, who now leads the party but is behind Schulz in latest polling.

He is also floated as a possible replacement for Foreign Minister Frank-Walter Steinmeier, another top socialist who is to become Germany's next president.

Until his announcement, Schulz had been working behind the scenes to stay in the EU parliament job, angering the centre-right European People's Party which said it was promised the role as it is the largest group in the assembly.

Last week Schulz even won the support of his friend Jean-Claude Juncker, the head of European Commission, who went against his own EPP party to back Schulz.

With Schulz's exit, the EPP group will now announce their own candidate to head the parliament. Its choice will become a near-certainty for the job.

"We need to concentrate on a consensus candidate," said EPP group leader Manfred Weber of Germany, a close ally of Merkel.

He declined to say whether he would stand himself, with Irish deputy parliament chief Mairead McGuinness having also said she will stand.

Schulz, who once dreamt of being a footballer, first hit international headlines in 2003 for facing down a Nazi jibe from Italy's then prime minister Silvio Berlusconi in a European Parliament debate.

But Schulz will be better remembered in Brussels as a fierce back room negotiator of EU politics, who also gave the European Parliament much-needed limelight with his outspoken comments.

"Nobody can deny Schulz has been the master of the backroom stitch-up," said the pro-Brexit British MEP Syed Kamall.

A dyed-in-the-wool pro-European, Schulz, grew up just across the border from Belgium and the Netherlands in the aftermath of World War II. 

After finishing Catholic school, Schulz opened a bookshop in a suburb of his home town until 1994.

He began his political engagement when he was just 19 by joining the SPD.

At 31, he became mayor of Wuerselen, the youngest ever to hold such a post in North Rhine-Westphalia, the most populous of the German states, and served for 11 years.