Merkel told the party that this will be her final parliamentary term as chancellor, the dpa news agency reported, citing unidentified party sources.
The world was a different place in April 2000 when a young Angela Merkel toasted victory as she was elected leader of the Christian Democratic Union party.
According to the outlet, the German Chancellor, who has been chairwoman of the CDU for 18 years, has decided not to run again for the party leadership at a conference in early December.
She now governs Germany in a "grand coalition" of what traditionally have been the country's biggest parties - the CDU, Bavaria's conservative Christian Social Union, and the center-left Social Democrats.
Ms Merkel's decision follows a drop in support in a state election in Hesse, the second such electoral setback for her conservative alliance.
The Social Democrats only reluctantly entered Merkel's fourth-term national government in March, and many are dismayed by what has happened since.
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The surprise news comes a day after the CDU and its junior federal coalition partner the Social Democrats (SPD) suffered heavy losses in an election in the state of Hesse, just two weeks after a similar drubbing in Bavaria.
Merkel has been in a hard position since September 2017, when a national election left her party without an overall majority.
Ms Nahles is also feeling the heat from party members still disgruntled with her decision to join Ms Merkel instead of fulfilling an election promise to sit in opposition if they fail to win the federal vote.
Political commentators believe if she split the two positions it would leave her sitting as a lame duck and it is unclear how long she could survive.
Following the close election results, the SPD's leader, Andrea Nahles, has announced a mid-term review of the current coalition government next year, taking the declining voting numbers as a sign that the German electorate is growing exhausted of the coalition's constant in-fighting and lack of progress on bringing legislative change to Germany.
Hesse's conservative governor, Volker Bouffier, told supporters that "the message this evening to the parties in the government in Berlin is clear: people want less argument, more objectivity, more solutions". It is the latest in a line of weak performances for parties in Merkel's ruling coalition, signalling a broader shift in German politics. Nahles' comments show the SPD will put more pressure on the conservatives to deliver policy results for the center-left party.