Thus, Merkel will take the post of Germany's Chancellor for the fourth term in a row.
Mrs Merkel has been in office since 2005 and she remains one of the key players of the European Union, together with French President Emmanuel Macron and his predecessor Francois Hollande.
"I accept the vote", a beaming Merkel, 63, told lawmakers before being sworn in by Bundestag President Wolfgang Schaeuble.
Merkel's designated deputy and finance minister, Olaf Scholz of the SPD, joked that the "grand coalition", forged half a year after inconclusive September elections, had "not started as a love marriage".
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Germany has been locked in political uncertainty for nearly six months after millions of voters abandoned the two main parties. Yet policies pledged by Merkel's new government are unlikely to defuse the conflict, with the current-account surplus probably rising to 8.1 percent of economic output this year, the third-highest since 1993, according to the DIW economic institute in Berlin.
Angela Merkel received 364 votes out of 692. Opposition leaders portrayed that as a blow to her authority, though the result was in line with those at the beginning of Merkel's two previous "grand coalitions".
"Welcome to the new government, but it was about time", German President Frank-Walter Steinmeier said at a ceremony Wednesday to swear Merkel and other new ministers into office.
Merkel's Bavarian partner CSU remains in charge of transport, naming Andreas Scheuer as new minister also facing major policy issues including the question of diesel driving bans in cities.
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With only nine votes above the needed majority - which lay at 355 votes - Merkel's victory is her narrowest since she first took office in 2005. But many SPD members and politicians remain unhappy with their party's involvement in the new coalition.
Ms. Merkel's spokesman said she would head to France on March 16 to discuss bilateral, European and global topics with President Emmanuel Macron.
The chancellor heads a much-changed Cabinet, with the governing parties - which are traditional rivals - keen to send signals of renewal after a September election in which all lost significant ground.
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