The SDP's former leader said the coalition agreement was "70 percent" Social Democratic policy and encouraged party members to bring "the personnel debate to an end" with his resignation and concentrate on passing the deal.
"I will defend the idea of joining the big coalition, I will do all it takes to achieve this, "said Nahles, whose party, however, disagrees about joining a new large coalition of conservatives".
Hamburg Mayor Olaf Scholz has taken over as interim SPD chief, with the party's parliamentary group leader Andrea Nahles lined up as the leadership's candidate to become the new permanent boss.
With many SPD members harboring misgivings about sharing power with Merkel again, the result of the vote, due on March 4, is wide open.
The party's membership will vote next week on the coalition deal struck last week between Mr Schulz and Mrs Merkel.
Many party members were angered that Schulz would consider becoming foreign minister after he previously stated he would not serve in a government under Angela Merkel.
Israel downs Iranian drone, Syria hits Israeli jet
The Israelis were met with heavy anti-aircraft fire and one F-16 is believed to have been struck by a surface-to-air missile. In response, Syria shot down more than one Israeli fighter jets, according the official.
Schulz on Friday then gave up plans to become German foreign minister, hoping to shore up support among SPD members for the new coalition - but the manner in which he anointed Nahles as his successor rankled with many in the party. The party's youth wing is already campaigning for a no-vote as it fears that another grand coalition with Mrs Merkel's conservatives will further erode the party's identity.
Schulz said an extraordinary party congress would be held in the western city of Wiesbaden on April 22 to pick a new leader.
In a cartoon published on Tuesday, the Sueddeutsche Zeitung daily showed Nahles with a whip riding an SPD snail.
Among supporters of Merkel's Christian Democrats and their Bavarian sister party, the Christian Social Union (CSU) - with whom the SPD are poised to form a with coalition government - 71.6 percent were critical of the SPD's ability to govern.
Schulz has also been criticized by fellow SPD politician and current Foreign Minister Sigmar Gabriel for pursuing the post. The former European Parliament president said last Wednesday that he planned to become Germany's next foreign minister - a risky move given that, after the election, he had explicitly ruled out entering Merkel's next cabinet.
The SPD originally wanted to reinvent itself in opposition but reconsidered when Merkel's attempt to form an alliance with two smaller parties failed late past year.