By Erik Kirschbaum and Michelle Martin BERLIN (Reuters) - Germany's eurosceptic Alternative for Germany (AfD) party surged to win more than 10 percent of the vote in two states on Sunday in a growing challenge to Chancellor Angela Merkel as her new right-wing rival makes further inroads into her power base. Merkel's conservative Christian Democrats (CDU) could also suffer an ominous loss of power in the state of Thuringia if the hardline Left party can persuade the Social Democrats (SPD) to switch allegiances and elect Germany's first Left state premier. The AfD, which was founded in early 2013 to oppose euro zone bailouts, surpassed all forecasts to win 10.2 percent of the vote in Thuringia and 11.9 percent in Brandenburg, according to projections broadcast on German television late on Sunday. The upstart AfD, ostracised by all mainstream parties, had already won a shock 9.7 percent in an election in Saxony two weeks ago on a campaign that is now also heavily focused on law and order. While the AfD fell just short of the 5 percent hurdle in last year's federal election, the right-leaning party is now cresting over 7 percent nationally. It now has seats in three of 16 state assemblies. AfD leader Bernd Lucke, a 52-year-old economics professor and father of five, said the strong results in two more eastern states add to the momentum of the party, which also won 7 percent of the vote in May's European parliamentary election. "We're delighted that voters have made the choice for a political renewal," Lucke said. "The results are even better than in Saxony and will give us enormous tailwind. We're not going to sit still and let the other parties bad-mouth us." Some political analysts had predicted the AfD might wither like the once trendy Pirates party, even though the AfD's ranks are filled with experienced politicians who defected from the centre-right. The AfD was also plagued by infighting earlier this year and struggled to stem an exodus of members. Most damaging, in a country where far-right views are anathema in politics because of the Nazi past, were allegations the AfD was being infiltrated and supported by extremists. But Lucke managed to silence the radical elements and widen the AfD's message. It was originally a one-issue party calling for a return to the Deutsche Mark. Its focus now includes better education, more security and support for small businesses. MERKEL MAY LOSE THURINGIA German SPD leader Sigmar Gabriel said his centre-left party needs to now tackle the increasingly popular AfD instead of largely ignoring it as major parties have done. He also blamed low voter turnout for inflating the AfD's success. "The AfD's policies are shockingly anti-European," the Economy Minister said. Merkel had no comment on the elections. "The well-paid professors and business lobbyists who lead the AfD can afford (to be anti-European) as they have secure jobs and income but skilled workers and labourers are reliant on us remaining an export nation - we need Europe." The AfD's meteoric rise could exacerbate tensions inside Merkel's conservative camp about how to deal with the emergence of the first genuine threat on their right. The conservatives have ruled out any alliance with the AfD. The CDU's more natural coalition partner, the Free Democats (FDP), are in freefall after crashing out of the national parliament in 2013. They were humiliatingly ejected from both parliaments on Sunday with less than 3 percent of the vote. In Thuringia, the CDU won 33.7 percent but the reform communist Left won a best-ever 28.2 percent. The SPD won just 12.6 percent but was considering bailing out of its coalition with the CDU to join forces with the Left - a first that could pave the way for such a left-leaning federal government in 2017. Together with the Greens, who won 5.9 percent, the Left and SPD could form a three-way leftist alliance that could one day rule at the federal level. The SPD dropped its self-imposed ban on coalitions with the Left party after the 2013 election. Worried about the spectre of Left-SPD-Greens tie-up in Thuringia and the national implications, Merkel campaigned heavily against such a leftist alliance, warning the SPD in Thuringia against forming a coalition that would install the first hardline Left party state premier. In the state of Brandenburg, the SPD came out on top with 32.1 percent and looks likely to continue its coalition with the Left party, which won 18.7 percent. Merkel's CDU won 22.8 percent and the Greens won 6.2 percent. (Reporting by Erik Kirschbaum and Michelle Martin; editing by Ralph Boulton)