Ms Merkel said Germany would reap economic benefits from the move.
Germany is the biggest industrial power to renounce nuclear energy, in a policy reversal for the governing centre-right coalition.
Mrs Merkel set up a panel to review nuclear power following the crisis at Fukushima in Japan.
The crisis, triggered by an earthquake and tsunami in March, led to mass anti-nuclear protests across Germany.
The anti-nuclear drive boosted Germany's Green party, which took control of the Christian Democrat stronghold of Baden-Wuerttemberg, in late March.
Analysts say Mrs Merkel may be eyeing a future coalition with the Greens.
'Opportunities'Mrs Merkel said that in its "fundamental" rethink of policy, Germany could set an example for other countries.
"We believe we as a country can be a trailblazer for a new age of renewable energy sources," the German chancellor was quoted as saying by AFP news agency.
"We can be the first major industrialised country that achieves the transition to renewable energy with all the opportunities - for exports, development, technology, jobs - it carries with it."
She also said that electricity in the future should be "safer and at the same time reliable and affordable", linking the decision to step back from nuclear power to the crisis in Japan.
"We learned from Fukushima that we have to deal differently with risks," she said.
Under the German plan the country's seven oldest reactors - which were taken offline for a safety review immediately after the Japanese crisis - would never be used again.
An eighth plant - the Kruemmel facility in northern Germany, which was already offline and has been plagued by technical problems - would also be shut down for good.
Six others would go offline by 2021 at the latest and the three newest by 2022.
The previous German government - a coalition of the centre-left Social Democrats (SPD) and the Greens - decided to shut down Germany's nuclear power stations by 2021.
However, last September Ms Merkel's coalition scrapped those plans - announcing it would extend the life of the country's nuclear reactors by an average of 12 years.
The decision to extend was unpopular in Germany even before the radioactive leaks at the Fukushima plant.
Following Fukushima, Mrs Merkel promptly scrapped her extension plan, and announced a review.
Germany's nuclear industry has argued that an early shutdown would be hugely damaging to the country's industrial base.
Before March's moratorium on the older power plants, Germany relied on nuclear power for 23% of its energy.
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Analysis
Stephen Evans BBC News, Berlin Nearly a quarter of German's electricity comes from nuclear power so the question becomes: How do you make up the short-fall?
The official commission which has studied the issue reckons that electricity use can be cut by 10% in the next decade through more efficient machinery and buildings.
The intention is also to increase the share of wind energy. This, though, would mean re-jigging the electricity distribution system because much of the extra wind power would come from farms on the North Sea to replace atomic power stations in the south.
Protest groups are already vocal in the beautiful, forested centre of the country which, they fear, will become a north-south "energie autobahn" of pylons and high-voltage cables.
Some independent analysts believe that coal power will benefit if the wind plans don't deliver what is needed.
And on either side of Germany is France, with its big nuclear industry, and Poland, which has announced an intention to build two nuclear power stations.
Seher Hone Ko Hai
CID
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