"We have several options for forming a government," he said. "We should discuss all of these options and that is what I will recommend to the party leadership Monday."
The SPD's top brass will then present their recommendation to party rank and file during their congress from Thursday.
"It doesn't automatically mean a grand coalition, we have time and we will also discuss other possible options during the SPD party congress," said Schulz.
Merkel's party said it wanted talks with the SDP on a "stable" government.
After September's election left Merkel without a majority, the Social Democrats (SPD) firmly ruled out renewing an alliance as they had suffered a humiliating loss at the polls.
But the SPD came under pressure to relent and head off fresh elections after Merkel's bid to form a coalition with the ecologist Greens and pro-business FDP fell apart earlier this month.
Ahead of Schulz's statement Friday, Bild daily reported that the SPD leader and Merkel had agreed to open coalition talks.
But Schulz rejected the report as "wrong".
He said he had telephoned Merkel to say that any such claims from her conservatives to the media would be viewed as "a breach of trust".
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