German Chancellor Angela Merkel speaks to the media after preliminary coalition talks collapsed on November 19, 2017 in Berlin, Germany.

A split over immigration between Angela Merkel's Christian Democratic Union (CDU) and its sister Christian Social Union (CSU) party is threatening to end her 12-year spell as Germany's leader.

Germany's grand coalition government was formed in March after five months of political deadlock since an election the previous September. It resulted in Merkel's fourth term as German chancellor.

That vote saw a big upswing in support for the right-wing Alternative for Germany (AfD) party, who campaigned against Merkel's open-door policy to refugees and migrants arriving from the Middle East and Africa.

Now the CSU, fearful of losing further support from its conservative base, is threatening to withdraw from the country's grand coalition unless Merkel hardens her immigration stance.

"My sources in Berlin say the situation is on a knife-edge right now, some are even giving it an 80 percent probability that Merkel will step down in the next two weeks," said Nina Schick, director at political consultancy Rasmussen Global, in a telephone call to CNBC Friday.

Schick, however, warned that writing Merkel off has long been a dangerous game.

"The fundamental rule in German politics since 2006 is don't underestimate Merkel," she added.