Frauke Petry, head of the AfD, speaks following initial state election results on March 13, 2016 in Berlin, Germany | Carsten Koall/Getty Images Far-right AfD is now ‘pan-German party’ The anti-immigrant party now has seats in half of Germany’s 16 state assemblies.

The right-wing, anti-immigrant Alternative für Deutschland (AfD) is now a "pan-German party," its leader said Monday after making huge gains in a clutch of state elections that punished conservative Chancellor Angela Merkel for her refugee policy.

AfD leader Frauke Petry said the party's strong showing in elections on Sunday across three German states showed that "citizens in all regions of Germany want political change."

The AfD recorded double-digit support in Baden-Württemberg and Rhineland-Palatinate in the west of the country, while in Saxony-Anhalt in the east it became the second-largest party behind Chancellor Angela Merkel's Christian Democrats. The AfD now holds representation in eight of Germany’s 16 state parliaments.

Petry told Deutschlandfunk radio that the aim now was to show the AfD could work as an effective opposition force and then "someday become capable of governing," though she added: "But it is still too early for that."

Horst Seehofer, who heads the Bavarian CSU, the sister party of Merkel's Christian Democrats (CDU), attributed the election setbacks for the conservatives to Merkel's refugee policy, of which his party has been consistently critical.

“The main reason is the refugee policy. It makes no sense to avoid talking about it,” Seehofer said Monday, calling Sunday's results “a tectonic shift in the political landscape in Germany."

Elmar Brok, a senior CDU figure who chairs the European Parliament's foreign affairs committee, told the BBC that the AfD's gains were a "nightmare." However, he pointed out that mainstream candidates who actually endorsed Merkel's refugee policy did well in the state ballots, while CDU candidates who turned their back on the chancellor's line performed badly.

"The supporters of Ms. Merkel won the election," Brok said, referring to Green state premier Winfried Kretschmann in Baden-Württemberg and Malu Dreyer, the Social Democrat (SPD) premier of Rhineland-Palatinate, who both held onto power after coming out in favor of the chancellor's open-door policy on refugees, unlike her own candidates. "We’ve never seen such a situation."

Merkel acknowledged it had been a "difficult day for the CDU," but her government pledged to stick to its refugee policy, which is now focused on an EU-Turkish deal to help cope with the flow of migrants, while refusing to close the borders completely or suspend the passport-free Schengen zone, as some other EU countries have done.

"The federal government will continue the refugee policy with all our strength, at home and abroad," the chancellor's spokesman Steffen Seibert told a news conference, adding that it was vital to facilitate "the integration for the people who sought protection and found it here."

The CDU was quick to rule out any possibility of an alliance with the AfD at the next national elections in 2017, when Merkel's conservatives are likely to need to replace their current 'grand coalition' partners, the Social Democrats. Merkel's tactic so far has been to dismiss the AfD as a fringe, right-wing party.

"If you look at the content, there can be no cooperation between the conservatives and the AfD," CDU general secretary Peter Tauber told ZDF television.

German industry voiced concern that the rise of a far-right parties might damage the country's business reputation.

"It can't be ruled out that the element of high demand for retrograde parties such as the AfD or the Left could scare investors," said Ulrich Grillo, head of the Federation of German Industries, who called the AfD "a protest party, without any substantive competence."

This article was updated with more reactions.