* Merkel's party comes 1st in small German state
* Her FDP allies thrown out of Saarland assembly
* CDU seen forming coalition with Social Democrats
* Two further state votes due in Germany in May
By Alexandra Hudson and Stephen Brown
BERLIN, March 25 Angela Merkel's Free Democrat (FDP) coalition partners crashed out of the assembly in the state of Saarland on Sunday with just 1.5 percent of the vote, according to exit polls, continuing a dismal run which has weakened Germany's centre-right government.
The chancellor's Christian Democrats (CDU) looked set to win the state election and were likely to seek a coalition with the second-placed Social Democrats (SPD), a trend which may be repeated in national elections next year.
"The people of Saarland have earned a stable government. They showed they wanted a ... coalition and that they wanted me as state premier," said the victorious CDU premier of Saarland, Annegret Kramp-Karrenbauer.
Merkel's conservatives got 34.5 percent of the vote in the western state of 1 million people, unchanged from the last state election in 2009. They were ahead of the centre-left SPD, who had been neck-and-neck with the CDU in polls ahead of the vote but managed just 31 percent, exit polls showed.
But her junior coalition allies on the national stage, the FDP, did even worse than the most pessimistic forecasts. With 1.5 percent - way under the 5 percent threshold for getting seats in the state assembly - they plummeted from their previous 9.2 percent.
Merkel's senior lieutenants immediately began a damage-limitation exercise. Her chief whip in Berlin, Peter Altmaier, denied the result posed any threat saying: "We have a stable coalition in Berlin. This was a different situation."
But the result in one of Germany's smallest states makes it more likely that the conservatives will have to choose a new partner if they manage to win the next federal elections in 2013, as all recent nationwide opinion polls suggest.
The FDP has dropped out of parliament in state assemblies up and down the country and risks further humiliation in two more state elections in May, in Schleswig-Holstein and in Germany's most populous state, North Rhine-Westphalia (NRW).
"There was a difficult situation in Saarland. But we are looking ahead to Kiel (in Schleswig-Holstein) and Duesseldorf (in NRW) with courage and commitment," said FDP Secretary General Patrick Doering, blaming weak candidates in Saarland.
His party has seen its support seep away after failing to deliver on 2009 national campaign promises such as tax cuts. A move to replace deeply unpopular leader Guido Westerwelle with the young Vietnamese-born Philipp Roesler has not stemmed the decline.
Merkel herself, who will seek a third term as chancellor in 2013, remains popular. She is widely seen as a safe pair of hands who led Germany through the euro zone debt crisis and shepherded Europe's strongest economy back to an enviable state of health.
Ahead of the Saarland poll, both the CDU and SPD had stood neck and neck in polls there, reflecting a growing feeling in the country that there is little difference between the two major parties on most major issues from the euro to nuclear power.
With the FDP languishing at 4 percent and below in national polls, down from its record 14.6 percent in the last federal election, Merkel may have little choice but to repeat the coalition with the SPD with which she governed from 2005-2009. The CDU and SPD already run four German states jointly.
The SPD has ruled out a coalition in Saarland with the far-left Linke, who were represented in the state by party patriarch and former finance minister Oskar Lafontaine and got 16.1 percent.
The Greens took 5 percent, down slightly from the last state vote, and the fast-growing Pirate party entered the assembly for the first time with up to 8 percent, according to exit polls.
The regional votes in Schleswig-Holstein and NRW in May will lay the ground for the national vote next year, offering clues about Merkel's re-election chances and the kind of coalition that will rule in Berlin from 2013.
With 18 million people, NRW is larger than many European countries and its elections have had a destabilising effect on national politics in recent years. The ousting of the CDU state premier in NRW in 2010 lost Merkel her majority in the upper house of parliament, making it difficult to pass legislation.
Five years earlier, a humiliating loss for the SPD in NRW, whose big cities and heavy industry had made it a centre-left stronghold for decades, prompted Chancellor Gerhard Schroeder to call early national elections, which hoisted Merkel into power.
A fresh national opinion poll published by Emnid on Sunday saw the CDU remaining the most popular party with 35 percent of the vote, the SPD strengthening by one point to 28 percent, the Greens at 15 percent, the Left party and the anti-establishment Pirate party both at 7 percent, and the FDP at 4 percent.