Merkel's Christian Democrats triumphed in Saarland, dealing a blow to the SPD and boosting Merkel's hopes for the September elections.
The poll showed the anti-immigrant Alternative for Germany in third place.
Former president of the European Parliament has revived the flagging fortunes of his party.
Former European Parliament president Schulz took over his party to turn its flagging performance around.
Schulz is Merkel's nearest competitor for the German chancellorship.
Schulz will stand as the center-left Social Democratic Party (SPD) candidate for Chancellor in the poll scheduled for September.
Martin Schulz said that MEPs had only a "secondary role" in Brexit negotiations.
Move fuels speculation that Schulz could contest Angela Merkel's chancellorship.
European Parliament president warns EU likely to veto any deal that gave the U.K. full access to single market with restrictions on EU immigration.
EU leaders are meeting in Bratislava to discuss the bloc's future.