The parties missed a deadline on Sunday to reach agreement on healthcare matters, although they found consensus on agriculture and housing measures, including investing more than €2bn in social housing by 2021.

Angela Merkel’s party, the centre-right Christian Democrats (CDU) and the centre-left Social Democrats (SPD) also agreed to spend up to €12bn on expanding broadband and give €33bn to municipalities for various projects including childcare.

The parties had hoped to form another “grand coalition” on Sunday, four months after the election.

But they are in dispute over the SPD’s call to replace Germany’s dual public-private healthcare system with a universal insurance system for all.

Merkel said on Sunday: “We did good groundwork yesterday but there are still important issues that need to be resolved.”

If the SPD rejects a coalition deal, Germany could face a new election or an unprecedented minority government.

The chancellor pledged after the election to focus on investment and budget consolidation in coalition talks.