The announcement came after SPD party leader and vice-chancellor Sigmar Gabriel surprised observers by saying he would step aside to make room for Schulz, conceding that his own chances of victory were dismal.
Schulz is "the better candidate with better chances" of success on September 24, Gabriel told reporters yesterday in Berlin after a meeting of the party leadership.
"He is someone who can build bridges, who can bring people together," Gabriel said, adding that Schulz would also replace him as SPD leader.
His candidacy still needs to be formally approved in a party vote on Sunday, considered a mere formality.
Although Merkel's conservative CDU/CSU bloc enjoys a comfortable lead over the Social Democrats, recent surveys show that Schulz, a household name in Germany, rivals Merkel's popularity on a personal level.
His entry into the race could prove a headache for the chancellor at a time when her party is already under pressure from the rightwing Alternative for Germany (AfD), which has capitalised on anger over her liberal refugee policy.
They are followed at a distance by the SPD with about 20 percent, weakened by their lacklustre years as the junior partner in Merkel's coalition government.
The insurgent AfD meanwhile is polling at around 15 percent.
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