Mr Schroeder was forced to send a letter of apology to Mr Bush, but the White House described Ms Daeubler-Gmelin's remarks as "poisonous" and the German opposition accused the chancellor - who has also voiced strong criticism of US plans to attack Iraq - of isolating Germany.

Daeubler-Gmelin's remarks "poisoned" Germany's relationship with the US

"I think it is worthy of respect that she doesn't want to burden a new start with all that happened," Mr Schroeder said announcing Ms Daeubler-Gmelin's resignation.

And FDP deputy leader Juergen Moellemann attacked the policies of Israeli Prime Minister Ariel Sharon, prompting accusations of anti-Semitism.

The party is thought to have lost votes as a result and, even before the polls closed, its leadership asked for Mr Moellemann's resignation.

"I am resigning from my post as deputy head to spare the FDP an ordeal and further internal preoccupation," Mr Moellemann said. "This should open the way for a full and honest analysis of the all the reasons for the disappointing election result."

Mr Stoiber said that were it not for the FDP's result, his party might easily have formed a government.

Schroeder's vulnerability

Mr Schroeder and Green Foreign Minister Joschka Fischer made a triumphant appearance in front of the Social Democrat faithful as results began to indicate the team had secured a new four-year term.

Initially, Stoiber thought he had won

"We have hard times in front of us and we're going to make it together," Mr Schroeder said.

The chancellor acknowledged that his party's loss of voter support compared with 1998 - 38.5% now, 40.9% of the vote then - was "very painful".

The Greens had their best-ever showing - increasing their share to 8.6% - up 1.9% from the last election - in what correspondents describe as a power shift in their favour in the new coalition cabinet.

However, Mr Fischer has promised to be modest in pushing for his party demands, not wanting to embarrass the chancellor, the BBC's Rob Broomby says.

Just hours earlier, Mr Stoiber had claimed victory for his CDU/CSU alliance, with a large leap forward from 1998's devastating defeat.

It was a night of intense emotions and frustrations

Read Clare Murphy's latest report from Berlin

He returned to his home region of Bavaria to be given a hero's welcome and to warn Mr Schroeder that his second term would not be easy.

He said the new government would be so weak that he aimed to topple it within a year.

"The Schroeder government will only be able to govern for a very, very short time," Mr Stoiber told the party faithful in Munich.

"With this Red-Green coalition, Germany won't return to economic health and it won't break out of the isolation from Europe and America that Schroeder drove it into."

'Sea of troubles'

But SPD spokesmen dismissed the threat.

"In three weeks the government will be stable," Social Democrat General Secretary Franz Muentefering told German radio.

BBC European affairs analyst William Horsley says the chancellor may face a sea of troubles - repairing Germany's relationship with America, trouble with Germany's European partners and an economy in urgent need of resuscitation.

But at least on Iraq, Mr Schroeder stood by his opposition to any American-led military action against Iraq in remarks to journalists on Monday.

The turnout was 79.1%, and the results will not be considered final until they are certified in about two weeks' time.