The Alternative for Germany party (AfD), which has campaigned hard against Chancellor Merkel’s policies on refugees, is estimated to have won 21% in the Mecklenburg-Vorpommern contest.
Mrs Merkel’s Christian Democrats are projected to be placed third in the election.
Although the centre-left Social Democrats are expected to retain first place, they are projected to win 30.5% of the votes – a fall of five percentage points compared to 2011.
The AfD are hardline campaigners against the 1 million undocumented refugees who have entered Germany over the past 12 months. They also fight against most of the Islamic culture they claim “is taking over Western culture”.