Mrs Kramp-Karrenbauer, previously the CDU's general-secretary, faces the hard task of uniting the divided party after a series of bad election results. As well as disagreeing with Merkel's policies and party leadership as too left-leaning, the millionaire businessman had an axe to grind after she ousted him from politics almost 10 years ago. However, it's possible that Germany's next general election could come earlier.
But she has warned that endlessly rehashing debates about Merkel's decision to allow in large numbers of migrants in 2015 is a turn-off for voters.
The 56-year-old Merkel acolyte defeated Friedrich Merz.
The Christian Democratic Union (CDU) chose the former chief minister of Saarland on Friday to replace Mrs Merkel as party leader.
The frontrunners are Annegret Kramp-Karrenbauer, a Merkel protege seen as the continuity candidate, and Friedrich Merz, a Merkel rival who has questioned the constitutional guarantee of asylum to all "politically persecuted" and believes Europe's biggest economy should contribute more to the European Union.
National broadsheet Sueddeutsche Zeitung said Schaeuble's move signalled that the CDU's long-festering divisions, thinly veiled by unity behind Merkel, could well break out in the open after the conference.
Kramp-Karrenbauer was the first woman to be a German state's interior minister, or top security official, and served as the governor of western Saarland state, defying expectations to win re-election by a wide margin previous year. She gave up that job in February to become the CDU general secretary, in charge of day-to-day strategy. While she has often been dubbed "mini Merkel" for her steady, pragmatic style, she subtly distanced herself from the chancellor in the run-up to today's high-stakes vote. She said the party must not look to the past but the future.
A staunch Catholic, Kramp-Karrenbauer has spoken out in favour of a ban on doctors who carry out abortions being able to advertise their services, after a court case propelled the topic into the headlines, and is also openly sceptical about the "marriage for all" law campaigned for by her opponent, Jens Spahn, who is married to his male partner.
She would be the most risky candidate to face the centre-left Social Democrats and the ecologist Greens, he added.
She also celebrated Germany's balancing its budget in recent years and its response to the eurozone debt crisis. He won 157 votes.
Whoever wins will face towering challenges for the party, which is now drawing roughly 30 per cent at the polls, far below the around 40 per cent enjoyed during Merkel's heyday.
"We are in demanding times today, no doubt about that", she said. Merkel's fourth-term governing coalition with the center-left Social Democrats has lurched through a series of crises since taking office in March, and the CDU has lost supporters both to the liberal Greens and to Alternative for Germany. "But. we faced an hour of destiny for the Christian Democratic Union 18 years ago". "And this is the motivation with which I am here and why I run for CDU party leadership", Spahn said. And I would say the result in that today she can not continue to be the head of the party, this is the success of the opposition work from the Alternative for Germany party.
Waving orange cards with the slogan "Thank you boss", delegates cheered as Merkel, 64, walked onto the stage at the conference centre in Hamburg, her birthplace, to end an era for the party.