SPD federal chairman Kurt Beck, who would under normal circumstances be the candidate, had agreed to work out the party's program for the September 2009 elections with Steinmeier, the Financial Times Deutschland (FTD) reported.

It added that Beck would put forward Steinmeier's name shortly after the Bavarian state elections on Sept. 28.

Beck had previously indicated the decision on who would challenge incumbent Christian Democrat (CDU) Chancellor Angela Merkel would be announced "before Christmas."

Giving in

Speculation has mounted in recent months that Beck, who enjoys backing within the party but who, opinion polls show, has failed to make his mark on the wider electorate, would yield to Steinmeier, who has a higher public profile, although less backing within the party.

The two are to meet Sunday to begin planning their strategy as the party, Germany's oldest political bloc with its roots stretching back to the trade union movement of the 1860s, plumbs all-time lows in the polls of around 20 percent.

The party is divided on how to confront the rise of the Left Party, which draws its main support in the formerly communist east but has also provided a home for those in the west opposed to the reform course struck by Merkel's predecessor as chancellor, former SPD leader Gerhard Schroeder.

Steinmeier, as Schroeder's chief of staff, is still closely associated with the Agenda 2010 program, pushed through in 2003-05 over opposition from the party's left wing.

Test of unity

The chancellor issue looms as the party faces another test of its unity in the western state of Hesse, where SPD leader Andrea Ypsilanti narrowly failed to oust CDU Premier Roland Koch in elections in January, leaving the state legislature without a clear majority.

Despite an earlier failed attempt, Ypsilanti is putting out feelers once more in an attempt to form a minority government on the basis of tolerance by the Left.

The move is opposed by many within her own party who are fearful association with the former communists could prove electoral poison in next year's federal elections.