Delegates in Bonn voted 362 to 279 on Sunday in favor of opening the coalition talks. Once a coalition agreement is reached with Merkel's Union bloc, the Social Democrats' membership still would have to approve it before a government can be formed.
Ahead of the vote, party leader Martin Schulz told delegates he would push for more concessions from the conservatives on labor, health and migration policies.
The leader of Germany's Social Democrats is urging party members to vote for opening coalition talks with Chancellor Angela Merkel's conservatives, saying a stable German government was needed as a bulwark against right-wing extremism.
The center-left party has governed with Merkel's Union bloc since 2013, but party leader Martin Schulz initially vowed not to renew the so-called "grand coalition" after his Social Democrats took a beating in September's election.
Schulz told party members gathered in Bonn that his view of the political situation changed after Merkel failed to form a coalition with two smaller parties.
He said: "Europe is waiting for a Germany that knows its responsibility for Europe and can act decisively."
Germany's center-left Social Democrats are debating whether to enter coalition talks with Chancellor Angela Merkel's conservatives, and help break the political deadlock since September's election.
If the Social Democrats reject entering the talks, the only options left are for Merkel to form a minority government or for new elections.
Social Democrat deputy leader Malu Dreyer, the Rhineland-Palatinate governor, told delegates in Bonn on Sunday that since Merkel's Union bloc has indicated it wouldn't form a minority government, their vote will either be for entering talks on forming a new so-called "grand coalition" with the chancellor, or new elections.
Urging the delegates to vote for entering coalition talks, she told them "we can't force the Union into a minority government, that's an illusion."
The vote is expected later Sunday.