Angela Merkel's conservatives had secured a stunning hat-trick win in the September 22 elections but failed to grab an outright majority, forcing her to enter into lengthy coalition talks with the rival Social Democrats (SPD).
With a whopping 504 of the 631 seats, 59-year-old Angela Merkel's centre-right Christian Democrats Union (CDU) bloc and the SPD now hold a comfortable majority in the Bundestag, the lower house of parliament, under their hard-fought 'grand coalition' deal.
"I accept the election result and thank you for your trust," said Angela Merkel after the confirmation vote in the Bundestag. Smiling, she received a bouquet of flowers and shook hands with other MPs.
Germany's first female chancellor was confirmed by 462 votes today, with nine abstentions. For the vote, 621 members of parliament were present, of whom 150 voted against Angela Merkel.
She would visit President Joachim Gauck at his palace before returning to parliament to be sworn in as Germany's only third post-war chancellor to win a third four-year term after her mentor Helmut Kohl (1982-1998) and Konrad Adenauer (1949-1963).
Germany's tough stance on fiscal discipline is unlikely to change under the new coalition.
The SPD lawmakers voted on Sunday to back the coalition after painstaking negotiations.
The party hammered out a minimum national wage, an hourly rate of USD 11.55 that will come into force for the first time in 2015.
The new government will be slightly to the left of the previous one, in which the CDU were in coalition with the market-oriented Free Democrats (FDP), BBC reported.
But the SPD will form a minority part of the government and no one doubts that Angela Merkel will be in charge.
As the EU's most industrialised and populous state, with its biggest economy, Germany dominates decision-making for the eurozone.
The Left Party and the Greens have 127 seats, so at least 23 of those who rejected Angela Merkel's nomination were from the parties making up the new coalition.
The coalition talks had been the longest for any German government since since World War 2.
The CDU and SPD finally signed the deal, a 185-page agreement entitled "Shaping Germany's Future", late last month.
Angela Merkel was obliged to turn to the SPD after the FDP failed to win any seats in the September election, falling short of the five per cent hurdle to enter the Bundestag.
Trusted Angela Merkel ally Wolfgang Schaeuble will remain the Finance Minister in the new government, one of 10 CDU politicians in the 16-strong cabinet.
"His name stands for euro stability and I'm glad that he's continuing," Angela Merkel said after news of the new line-up emerged.
Other CDU picks include Ursula von der Leyen as defence minister and Thomas de Maiziere as interior minister.
For the SPD, party chairman Sigmar Gabriel will become economy minister and deputy chancellor, while Frank-Walter Steinmeier will be foreign minister.