The Sunday contest was viewed by many as a referendum on Chancellor Angela Merkel's immigration policy, and her party suffered a significant defeat on her home turf.
Merkel admitted Monday that decisions on immigration played a role in the result, but insisted that she has made the right ones.
Alternative für Deutschland, or AfD, defeated the Christian Democratic Union -- Merkel's party -- in local elections in the state of Mecklenburg-Vorpommern, coming in second behind the Social Democratic Party, according to exit polls.
AfD was only formally founded in April 2013, yet it defeated the CDU in the German chancellor's home state.
Although AfD has performed strongly in several other regional elections, most notably coming in second with 24% of the vote in Saxony-Anhalt in March, it's an unprecedented moment in modern German politics that the CDU is set to finish behind a party so far to its right on most issues.
The preliminary results indicate the Social Democratic Party won 30.6%, Alternative für Deutschland took 20.8% and the Christian Democratic Union got 19%.
A referendum on refugees
In an interview with CNN Monday, AfD party leader Frauke Petry interpreted the party's success in Mecklenburg-Vorpommern as a personal defeat for Merkel.
Petry suggested that with her party gaining across the country, the Christian Democratic Union is "falling apart" and said it's time for Germany to close its borders.
"We see the political climate changes towards AfD and against the established parties, especially the Christian Democrats, Angela Merkel's party -- 21 percent in the northeast of Germany is an absolutely brilliant result," Petry told CNN.
"The CDU is falling apart, but not only up there," she added. "We see that in many regions of Germany where the CDU bases, the party bases, don't agree with Merkel's policy anymore.
"We want that the German government closes German borders to illegal migration... We don't want a new border in Germany. But we need controlled borders. We need a change of legislation on a German level, but also an EU level, to avoid illegal migration."
Merkel has stood firm on Germany's position of accepting nearly all asylum seekers found to be legitimate refugees. Germany took in more than 1 million refugees in 2015, making it the most open country in Europe to asylum seekers.
Merkel admits there's a lot to do
Responding to the preliminary results from the weekend vote, Merkel -- who is in China at the G20 summit -- told reporters she was "dissatisfied with the outcome of the elections."
She admitted that "many people do not have our confidence regarding the refugee question."
After a series of terrorist attacks in July, Merkel refused to back down on her immigration policy, which she has termed a moral responsibility, especially to people fleeing the horror of civil war in Syria.
Monday the Chancellor insisted the decisions made on how to handle the refugee crises were correct, but acknowledged: "We still have to do a lot to regain our (party's) confidence."
Not a disaster, but of concern
Experts say the results don't mean there's a looming disaster for Merkel in next year's election if she chooses to run -- the AfD would likely have trouble forming a coalition with more traditional political parties -- but they do signal some concerns for Merkel.
Politico's senior European Union correspondent, Ryan Heath, said analysts believe Merkel still has an overwhelming likelihood of winning the national elections in 2017. However, these predictions are based largely on the national weakness of the Social Democrats, currently the junior partner in the coalition government.
Rise of the right
Formally founded in April 2013, AfD was set up by academics disgruntled by Merkel's eurozone crisis management -- most notably the Greek bailouts. However, AfD mutated into a more nationalist party that strongly opposed rising immigration levels -- particularly of people from Muslim countries.
Heath noted that the growing strength of the populist, anti-immigrant AfD mirrored similar parties in France, Poland and Hungary as well the Brexit vote in the United Kingdom
and the rise of Donald Trump as the Republican presidential nominee in the United States.