Merkel has been scrambling to avert snap elections after talks to form a new government with the pro-business Free Democrats (FDP) and the left-leaning Greens broke down a week ago.
The Social Democrats had vowed to go into opposition after a disappointing showing in the September general election, but in a U-turn on Friday SPD chief Martin Schulz said he was ready for talks with Merkel's bloc.
The failed three-way tie-up between the CDU/CSU, the Greens and the FDP had been dubbed "Jamaica" because the parties' colours match those of the Caribbean country's flag.
Merkel, who has baulked at the idea of a repeat election, yesterday said she wanted to form a government "very soon".
Talks with the SPD should be based on "mutual respect" and "compromise", she added.
A breakthrough could come on Thursday, when German President Frank-Walter Steinmeier hosts talks between Merkel, Seehofer and Schulz.
Schulz had categorically ruled out another stint as junior coalition partner after four years of governing in Merkel's shadow led the SPD to its worst result in decades in the September 24 poll.
But with Europe's top economy facing prolonged political uncertainty after the collapse of the Jamaica talks, and with fears that snap polls would mainly benefit the far-right AfD, Schulz bowed to pressure to soften his stance.
Seehofer warned the SPD however not to come to the negotiating table trying to dictate terms.
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