Schulz delivered a passionate plea for a more united and federal Europe at an SPD party congress that was due to decide whether his centre-left party will enter exploratory talks to form a new coalition government with Merkel.
The SPD motion said the "open-ended" talks will start next week and would lead to three options: a new grand coalition, the acceptance of a minority government led by Merkel, or snap elections if no government can be formed.
Merkel's talks with two smaller parties collapsed last month, prompting a change of course by Social Democrat leaders - who after a disastrous election defeat in September had previously insisted they would go into opposition. Merkel's bloc, he argued in an article in the daily Frankfurter Allgemeine Zeitung, doesn't want "far-reaching institutional reform".
"It's not about the question of Grand Coalition or no Grand Coalition, minority government or no minority government", he said on Thursday.
Delegates at a party conference in Berlin voted by a large majority in a show of hands to back a motion laying out the party's priorities in talks with the longtime chancellor's Christian Democrats.
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"We don't have to govern at any price, but we can not not want to govern at any price", he said, a clear appeal to a majority of the 600 SPD delegates who view September's election result as a warning to leave office and rebuild the party in opposition.
The approximately 600 SPD delegates are reluctant.
SPD conservatives and the party youth wing favour going into opposition.
SPD's decision was welcomed by the Union.
In an election later, Schulz was re-elected as SPD's party leader with a total of 81.9 percent of the vote, down from the 100 percent he received in March when he was elected as SPD Chairman.
The Social Democrats are Merkel's best hope for building a government in her fourth term in office, after discussions with the Greens and the liberal Free Democrats failed.