Chancellor Angela Merkel, whose Christian Democrats, joined by junior ally the Free Democrats, have maintained control of the national Parliament, lost control of Lower Saxony to Merkel's rivals, the Social Democrats, allied with the Greens.
Merkel's more liberal challengers won control of the Lower Saxony Parliament by a single seat, largely on a message of narrowing the class divide and creating a national minimum wage for workers.
"Of course when you have been on such an emotional rollercoaster then a defeat is that much more painful," Merkel said as her party digested the implications of the defeat. "We have got to ensure that in future election campaigns we get the necessary majorities together."
Peer Steinbruck, the man who would likely succeed Merkel if her Christian Democratic coalition suffers a similar defeat nationally, was ecstatic with the victory in Lower Saxony, the British newspaper The Daily Telegraph reported Monday.
"It means that this year a change of government and power is possible, in view of the perspectives in September," Steinbruck said.