A political crisis was avoided Monday evening when Seehofer dropped his threat to resign after hours of talks with Merkel. The leader of the CSU, the Bavarian sister party of the Christian Democratic Union (CDU), said the two leaders had agreed on how to prevent illegal immigration between Germany and Austria .

The German coalition government has been salvaged after Chancellor Angela Merkel reached a compromise with interior minister and the leader of the Christian Social Union (CSU), Horst Seehofer, ending a bitter standoff over immigration.

The deal’s details, reported by Deutsche Welle, involves a “new border regime” that will prevent asylum seekers entering Germany whose “asylum procedures are the responsibility of other EU nations." It also requires transit centers for migrants at the border. It was also reported that in cases where such agreements cannot be reached, they would nevertheless be rejected "on the basis of an agreement with the Republic of Austria."

However, Austria said Tuesday that it was prepared to take measures for the protection of its own southern borders if the German coalition deal goes into force, Reuters reported. Austria’s statement did not go into any more detail but has piqued curiosity given that it borders Italy and Slovenia to the south.

The CSU partners Merkel’s Christian Democratic Union (CDU) in a governing coalition with the Social Democratic Party (SPD). If Seehofer had resigned it would have put Merkel in a difficult position and raised the possibility of another election, just months after the last one in September.

The deal is not yet finalized however, with the CDU and CSU meeting with their junior coalition partner on Tuesday, the Social Democrats, which has to agree to the arrangement.

Merkel said the pair had "reached a good compromise" after days of difficult negotiations. Seehofer said, meanwhile, that the agreement was “sustainable” and matched his “convictions,” and had allowed him to stay as head of the Interior Ministry.

Peter Beyer, a member of parliament and the CDU’s official commissioner for trans-Atlantic relations, told CNBC his party was glad to see an end to what he called the "crisis" and "internal conflict." He felt the SPD would agree to the deal.

"Is this the end of the conflict? Yes, but of course now it needs a lot of negotiation with our neighboring countries, with our partners within the European Union and then what has been negotiated will then have to be implemented."