"We are the force that's renewing the political landscape," said a jubilant Bernd Lucke, leader of the eurosceptic Alternative for Germany (AfD), which wants Europe's biggest economy to scrap the euro and return to the Deutschmark currency.
"I'm happy about this enormous vote of confidence," said the economics professor, adding that voters are turning away from mainstream parties that he said lack a clear message.
His nascent conservative party, which was only formed early last year, gained 10 per cent in Thuringia state and 12 per cent in Brandenburg, said exit polls by public broadcasters ARD and ZDF.
Analysts had predicted the AfD would draw much of the protest vote in the former East Germany, which still lags western states in wealth, jobs and wages 25 years after the Berlin Wall fell.
The results give a political toehold to the party which only narrowly missed out on entering the national parliament last September and won seven seats in European Parliament elections in May.
Merkel, worried about the AfD's growing ballot box appeal, this week said that "we must address the problems that concern the people", including "crime and rising numbers of asylum seekers".
Analysts say the AfD is seeking to occupy the political ground to the right of Merkel's Christian Democrats (CDU) while keeping its distance from the far-right fringe, like the openly xenophobic National Democratic Party of Germany (NPD).
