The Greens are running second, with support up to 19 percent, and the Social Democrats could lose almost half the 20.6 percent they won five years ago.
Needing coalition partners to govern is in itself a major setback for a party that has long leveraged its strength in Bavaria to punch above its weight in national politics. Both plummeted in support - reflecting a Europe-wide voter retreat from big parties of the left and right.
The CSU has always been identified with prosperity in Bavaria, where regional unemployment in the land of beer, lederhosen and BMW cars is Germany's lowest at 2.8 percent.
The AfD won 10.7 percent of the vote, the preliminary results showed.
"Society has changed, Bavaria has changed and Bavarian voters have changed - but the mainstream parties have slept through that change", Oberreuter said.
Katrin Ebner-Steiner, Deputy Chairman of the Bavarian right-wing Alternative for Germany (AfD) political party, Alice Weidel, co-Bundestag faction leader of the right-wing Alternative for Germany (AfD) political party, and Stephan Protschka, member of the German Parliament for the right-wing Alternative for Germany (AfD) political party, react to initial election results that give the party 11% of the vote in Bavarian state elections on October 14, 2018 in Mamming, Germany.
Bavaria's State Premier Markus Soeder from the CSU said there were "lessons to be learned from Sunday's painful results", but as the frontrunner, the party still had the right to form government.More news: Saudi dismisses threat of sanctions over Khashoggi
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If confirmed, the party will win seats in the Bavarian parliament.
"Where Germany is good, Bavaria is better", he told a rally Friday. "It is no coincidence when the results on the economy, security and finances are so clear". He also said that conservatives would start coalition talks "as soon as possible" with all parties, including anti-immigration AfD, which looks set to enter the regional parliament for the first time in its history.
The fallout over the refugee crisis and disputes between Seehofer and Merkel over how to control Germany's border, have nearly led to the collapse of Merkel's fragile coalition several times.
The biggest victor of the race has been the Green Party, who look to have doubled their support compared to 2013 as the left-liberal Social Democrats (SPD) saw a total collapse, losing over 10 percent of their previous support. They argued in June over whether to turn back small numbers of asylum-seekers at the German-Austrian border, briefly threatening to bring down the national government.
CSU leader Horst Seehofer has been a thorn in Merkel's side since her 2015 decision to open Germany's borders to more than 1 million migrants, gradually shifting his party to the right in an ultimately futile effort to counter the rise of the AfD. The CDU is expected to remain the largest party but lose votes.
There is widespread speculation that a poor performance on Sunday could cost Seehofer his job, though he has insisted he will stay.
It remains to be seen whether and how the Bavarian result will affect the national government's stability or Merkel's long-term future. The Bavaria elections come ahead of another key regional vote in the central state of Hesse later this month, and Merkel's planned re-election as her party's leader in December. "Otherwise, I'm waiting for the result".