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Germany's Social Democratic Party (SPD) on Friday picked Peer Steinbrueck, a former finance minister, to stand against Chancellor Angela Merkel in next year's general election.

The main opposition party lags well behind Merkel's conservative Christian Democrats (CDU) in the polls, but hopes to gather enough votes to rule in coalition with the smaller Green Party.

Party leader Sigmar Gabriel said he would not seek the chancellorship himself. The formal nomination, agreed in secret two weeks ago between him and Steinbrueck, would take place Monday in the centre-left party's national executive.

"I want to separate the office of SPD party chairman from the office of chancellor candidate," Gabriel said.

"I am accepting this challenge," Steinbrueck, 65, told reporters. "We want to replace the current government."

"We don't want it to be partially replaced," he added, rejecting suggestions that the Social Democrats would return to power as junior partner to Merkel's centre-right party, as they were 2005-09.

Merkel currently rules with the help of the pro-business Free Democrats.

Steinbrueck said he would focus the SPD's campaign on efforts to regulate financial markets and to restore what he called "the social balance" with proposals to prevent a sharp future decline in old-age pensions.

"We will make a 200-per-cent attempt to achieve a result that puts us in a strategic position to form the next federal government," said Steinbrueck, who led Germany's efforts in 2008 to dam the incipient financial crisis that later engulfed the eurozone.

SPD parliamentary caucus leader Frank-Walter Steinmeier also opted out of the race, paving the way for his fellow Social Democrat.

Merkel's spokesman meanwhile said the chancellor had "no preference whatsoever" as to who should be her opposite number at the election expected to be held in September 2013.

"The chancellor will stand up to any candidate," Steffen Seibert said, just before the announcement. But he agreed that Merkel had worked "very closely" with Steinbrueck while he was her finance minister.

Merkel and her party have a commanding lead in opinion polls, consistently garnering around 36 per cent. The SPD are at 30 per cent.

A poll for ZDF public television, published just before the announcement, showed just 36 per cent of Germans would pick Steinbrueck in a straight choice between him and Merkel, whereas 53 per cent would opt for her.

Claudia Roth, co-leader of the Greens, welcomed the choice, saying the nominee was "a candidate who can mobilize the classic SDP voters."

The announcement came as it was expected that a former SDP leader, Kurt Beck, 63, was to announce his retirement from politics after months of flak over his investment of government funds in a motor racing track that went bankrupt.

Beck, who never mounted his own run for chancellor, would announce later Friday his resignation as premier of Rhineland Palatinate state, sources said.