German Chancellor Angela Merkel has bowed out as leader of her Christian Democrats (CDU) with an emotional speech to her conservative party as it met to pick her successor, who will move into pole position to become Germany's next leader.

Key points: When she announced she would be stepping down, the German leader said it was time for the party to "turn a new page"

When she announced she would be stepping down, the German leader said it was time for the party to "turn a new page" She served as party chief for 18 years

She served as party chief for 18 years Ms Merkel has previously said she would remain neutral on her successor

With 517 of the 999 votes cast, Annegret Kramp-Karrenbauer, a Merkel protege seen as the continuity candidate, has been chosen as the new party leader.

She narrowly defeated Friedrich Merz, a Merkel rival who has questioned the constitutional guarantee of asylum to all "politically persecuted" and believes Europe's biggest economy should contribute more to the European Union.

Ms Merkel said in October she would step down as party chief but remain Chancellor, an effort to manage her exit after a series of setbacks since her divisive decision in 2015 to keep German borders open to refugees fleeing war in the Middle East.

Ms Merkel, 64, told the CDU congress in Hamburg of her gratitude for the chance to have served as party chief for 18 years — 13 as chancellor, in which she came to dominate European politics as its key crisis manager and consensus-builder.

"It has been a great pleasure for me, it has been an honour," she said to a standing ovation lasting nearly 10 minutes, and fighting to hold back tears.

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Outlining the multiple challenges facing Germany, from rapidly changing technology to climate change and a global shift away from multilateralism to defending national interests, she said:

"In times like these, we will defend our liberal views, our way of life, both at home and abroad."

"The CDU in 2018 must not look back but look forward, with new people … but with the same values."

Ms Merkel has said in the past she would remain neutral on her successor as party chief.

What's next for Germany's ruling party?

Ms Kramp-Karrenbauer was chosen by 1,001 delegates who voted at the congress on Friday afternoon. She will likely lead the CDU in the next federal election due by October 2021.

Ms Kramp-Karrenbauer's trump card was her record as former state premier in Saarland, where she led a broad coalition with the Greens and pro-business Free Democrats — alliance-building skills useful in Germany's fractured political landscape.

Annegret Kramp-Karrenbauer (right) defeated Friedrich Merz (left) to take over from Angela Merkel. ( Reuters: Thilo Schmuelgen )

Ms Kramp-Karrenbauer has differentiated herself from Ms Merkel on social and foreign policy by voting in favour of quotas for women on corporate boards and by taking a tougher line on Russia.

She told Reuters last week that Europe and the United States should consider blockading Russian ships over the Ukraine crisis. But on what lies ahead for the CDU, Ms Kramp-Karrenbauer said: "I have no particular recipe."

The 56-year-old was a party favourite and Ms Merkel's choice for succession.

Earlier during her farewell speech as party leader, Ms Merkel praised Ms Kramp-Karrenbauer for her 2017 electoral success in Saarland, in a clear hint at the chancellor's personal preference in the leadership race.

Reuters