BBC World Editor John Simpson on day one of life after Kohl

The Chancellor-elect, Gerhard Schröder, said this was the logical consequence of the poll result, which gives the Social Democrats and the Greens a clear majority in the new parliament.

Thrashing out the terms of any deal could take days or even weeks.

Gerhard Schröder: Coalition must bind everyone

"I have the impression that the Green leadership is not entertaining the idea of forming a government contract for less than four years," Mr Schröder said. "Care comes before haste."

"We need a coalition agreement that binds everyone without ifs, ands or buts," Mr Schröder added.

Green Party parliamentary leader, Joschka Fischer, said negotiations would be far from easy and would demand compromises on both sides.

Mr Schröder said the three key principles for the Social Democrats in the negotiations would be economic stability, internal security and continuity in foreign policy. Correspondents say a Social-Democrat-Green coalition would nevertheless be the most radical in post-war Germany.

21-seat majority

The SPD won about 41% of the vote in Germany's General Election - 6% more than Chancellor Helmut Kohl's Christian Democrats who have governed for the past 16 years.

Kohl: "It's been a difficult evening"

To secure a majority in parliament Mr Schröder will need to work alongside a junior coalition partner. The Greens, who polled 6.7% of Sunday's vote, have have been the SPD's preferred choice of partner throughout the election campaign.

The so-called "red-green coalition" would give the parties 345 seats in the 669-seat parliament, a clear 21-vote majority.

"I think 21 seats is enough of a majority to form a stable government," Mr Schröder told the German national ZDF television network.

But the SPD does not see eye to eye with the Green Party on all issues. The Greens say they would insist on an end to nuclear power and would introduce environmentally-friendly taxes.

The Greens would also expect to control the environment ministry, and there is speculation that Mr Fischer is eyeing the post of foreign minister.

'Era come to an end'

Mr Kohl lost his home district of Ludwigshafen to the Social Democratic candidate, and said he would not seek re-election as head of the CDU.

Finance Minister Theo Waigel, who leads the CDU's Bavarian sister party the Christian Social Union, has also said he will not run for re-election as chairman of his party.

Mr Schröder described the election result as a generational change, and said his duty was to unite and modernise Germany.

Gerhard Schroder:"We must modernise the country"

"The Kohl era has come to an end," he said. "Our task will be to thoroughly modernise our country."

World leaders congratulated Mr Schröder on his victory, with especially warm words from British Prime Minister Tony Blair and the French Prime Minister Lionel Jospin.

Tony Blair: "looking forward to working with Mr Schröder"

Mr Blair hailed his election as a "new era for Europe", and said he looked forward to working with him very closely.

The 54-year old victor said his priority will be to tackle record unemployment, which currently stands at more than 10% of the workforce.

He also pledged to maintain strong relations with Germany's allies, such as Britain and France.

However, just how far he can pursue his policies depends largely on his coalition partner.

Parties look ahead

Mr Kohl remains chancellor for a further month, until the new parliament meets to vote in his successor, and there is plenty of time for political manoeuvring before then.

Wolfgang Schaeuble: Tipped to take over the CDU

But all the parties are holding leadership meetings in Bonn on Monday.

The CDU will begin discussions on who should replace Mr Kohl as leader. Front-runner for the job is Wolfgang Schaeuble, 56, the party's influential parliamentary leader.

He has diplomatically not ruled out a grand coalition with the SPD should Mr Schröder request it, but has said it looks unlikely.

"The grand coalition is a last resort solution when no other majority is possible," he said. "But the way the result looks at the moment, there is another majority."

The CSU has dismissed the idea of co-operating with the SPD, saying it would only strengthen the extreme left and extreme right.