Mr Schulz is a member of Germany`s Social Democratic Party (SDP), which is in coalition with Ms Merkel`s centre-right Christian Democratic Union party.
The SDP leader Sigmar Gabriel said on Tuesday he would not stand in the upcoming vote and put Mr Schulz forward as the party`s candidate for chancellor.
Mr Schulz recently decided to return to domestic politics after five years in Brussels.
He has been a vocal critic of the UK’s decision to leave the EU, saying Brexit could lead to “mutual humiliation” of the UK and Brussels.
Future Brexit negotiations between London and Brussels are likely to be affected by who is elected German chancellor on 24 September.
Ms Merkel will be running for a fourth term, although it is not clear who would join her in a coalition government.
The vote is expected to see the nationalist Alternative for Germany (AfD) enter parliament on a wave of anti-migrant sentiment.
Ms Merkel`s conservative bloc is currently leading in the polls on about 36 per cent, followed by the SDP with around 21 per cent and the AFD on 12 per cent.
Mr Schulz is yet to comment on his selection by the SDP head, although he hinted in November he might run for chancellor.
German media said Mr Gabriel was eyeing the foreign minister brief.
/The Independent/
Martin Schulz emerges as likely rival to Angela Merkel
25 January 2017
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Former president of the European Parliament Martin Schulz – a sharp critic of the Brexit vote – has emerged as the favourite to stand against Angela Merkel in German elections in September.
