Schulz dubbed the result "a hard day for social democracy" shortly after conceding defeat.
This is the second time in a week that that Merkel's conservative party has usurped the SPD. In a similar region election in Schleswig-Holstein on May 7, the CDU emerged with 33 percent of votes to the SPD's 26.2.
The SPD have now lost three regional elections to the CDU.
The state leader of the SDP in North Rhine-Westphalia, Hannelore Kraft, resigned immediately in a bid to deflect the loss away from Schulz. However, analysts anticipate that it will be an uphill battle for Schulz – or indeed any other opposition candidate – to unseat Merkel in Berlin.
"This is a veritable disaster for the party that has controlled the country's industrial heartland for almost half a century," Carsten Nickel, deputy director of research at Teneo Intelligence said in a research note.
"This marks the end of the so-called Schulz effect, the euphoria that surrounded Merkel's popular challenger ever since his surprise nomination earlier this year.
"His immediate task now will be to relaunch the so-far exclusively personality-driven SPD campaign for the Bundestag elections; the party immediately needs to start focusing on policies to widen the SPD's appeal beyond its core electorate."
However, Merkel's victory indicates that her charm offensive to win over new supported in the regions ahead of September's Bundestag election has already gained traction. She visited North Rhine-Westphalia eight times prior to the vote and has put homeland security at the centre of campaign in a bid to attract public backing as the country faces continued security threats.
"We have spoken a lot about security on the streets," Armin Laschet, CDU leader to North Rhine –Westphalia told CNBC Monday, remarking on his party's new success.
"We need more police to secure the security of the people but we want as well to lead a country of integration."
Merkel's party was thought to have been losing relevance in recent years after suffering defeat in several state elections, prompting commentators to anticipate a shift towards non-traditional parties, as seen with the rise in populism in 2016.
However, with a win for mainstream candidate Mark Rutte in Holland's election earlier this year, and the victory of Emmanuel Macron over Marine Le Pen in France last week, Germany's incumbent could be well positioned for a ride through to her fourth term.
"(Germans) are going back to what they know best and against populism … This is the story of 2017 - the fight back against populism," posited Timothy Ash, economist at BlueBay Asset Management.
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