Angela Merkel has agreed to cap the number of refugees Germany accepts at 200,000 annually in a concession to her conservative Bavarian allies that has overcome the first hurdle to coalition talks with other parties, the Guardian reported.

The Christian Social Union (CSU), sister party to the German chancellor’s Christian Democratic Union (CDU), has long pushed for a ceiling on the number of refugees but Merkel had resisted such a position.

In an apparent face-saving measure after 10 hours of talks in Berlin, both parties agreed to not refer to the policy as an “upper limit” or obergrenze, as the CSU had wished, but opted for a softer formulation, stating that “the total number of the intake based on humanitarian reasons … shall not exceed 200,000 a year”.

The parties also agreed the figure could be altered, in line with Merkel’s insistence that Germany must be able to react to international developments. In the case of a new refugee crisis, the government and the Bundestag could revise the figure upwards or reduce it.

The deal between the two conservative parties could allow Merkel to pursue a so-called Jamaica coalition between the CDU/CSU, the Greens and pro-business liberals in the FDP.

Merkel won a fourth term in office in elections last month, but the CDU and CSU secured just 33% between them and lost millions of voters to the far right Alternative für Deutschland (AfD).

The refugee cap deal is widely being interpreted as mainstream conservatives yielding to the demands of voters it has lost to the AfD, largely over Merkel’s open door policy which saw Germany receive almost 1 million refugees and migrants in 2015.

The Green party head, Simone Peters, criticised the deal. “The figure is completely arbitrary, fixed purely ideologically. As far as we’re concerned the fundamental right to asylum applies.”

She said the agreement was “far from the result of exploratory talks for a coalition with the FDP and Greens”.

Experts said they thought the 200,000 target was not an unrealistic one. The numbers arriving in Germany last year fell to about 280,000 and the figure is expected to drop further this year.

The CDU and CSU also agreed to work on creating an immigration law that would make the distinction between asylum seekers and job-seeking migrants, and would give priority to migrants with skills needed to plug a growing shortfall in the labour market. Such a policy has the backing of the FDP and the Greens.

The CSU faces a state election next year. Having dropped 10 points from its share of the vote at this year’s federal election, it is fearful of losing further voters to the AfD. Horst Seehofer, the CSU’s leader, is fighting for his political survival after what is being seen as a miserable election performance.

A coalition deal is still months away, despite Merkel’s insistence she will make it work before Christmas. The longer the delay, the bigger the impact on the economy is likely to be. The alternatives are a minority government or even new elections.