* Scholz polls 22.7% - far short of majority
* Left-winger Walter-Borjans on 21%
* Second round to sharpen focus on fate of Merkel coalition
* Snap election possible (Adds results of membership vote)
By Madeline Chambers
BERLIN, Oct 26 (Reuters) - Finance Minister Olaf Scholz came first in a vote to elect a leader of Germany's Social Democrats (SPD) but fell short of a majority, triggering a run-off set to fuel debate over whether to stay in government with Chancellor Angela Merkel.
The SPD said on Saturday that Scholz, who is also vice chancellor and wants to stay in the fractious ruling alliance with Merkel's conservatives, won 22.7% of the vote by rank-and-file members.
Scholz, 61, only narrowly beat left-winger and coalition sceptic Norbert Walter-Borjans, who came second with 21%.
A run-off vote will take place next month and a party conference in December must then formally approve the leadership vote.
Many members want the SPD to ditch the alliance with Merkel and reinvent itself in opposition. As Merkel's junior partner in 10 of the 14 years she has led Europe's biggest economy, they say the SPD has had to compromise too much on policy.
Walking out would probably trigger a snap election or possibly a minority government - both unappealing options for stability-loving Germans.
"I am relieved and happy over this result," said Scholz. "We need a strong SPD that has confidence in itself - and the confidence to win elections."
The SPD, Germany's oldest party, is in crisis. Polling at around 14%, it is barely off all-time lows and has been leaderless since June when Andrea Nahles quit after scoring its worst ever result in an election for the European parliament.
Twelve candidates ran on joint tickets and one deciding factor was their position on whether to stay in government or leave, say analysts and pollsters.
Scholz, running with Klara Geywitz from eastern Germany, was the best-known candidate and pollsters saw him as the front runner in an otherwise largely unknown field. He symbolises continuity and has said he will remain in the grand coalition.
Walter-Borjans is a former finance minister in Germany's most populous state, North Rhine-Westphalia, and is known for cracking down on tax evaders with Swiss bank accounts. His running mate is Saskia Esken.
Winning the backing of the leftist youth wing of the SPD, the Jusos, Walter-Borjans has left the fate of the coalition open while his running mate, Saskia Eskens, has called to pull out.
The winners have a tough job ahead.
They will have to unite a party that has been bitterly divided between leftists and centrists since former SPD Chancellor Gerhard Schroeder's welfare and labour market reforms some 15 years ago.
Facing a surge in support for the Greens on the left and with the far-right Alternative for Germany (AfD) collecting protest votes, the decline of the pro-European party proud of chancellors including Willy Brandt has been dramatic.
It has lost two thirds of its support since 1998 and its share of the vote in the 2017 federal election fell to its lowest level since 1933. (Reporting by Madeline Chambers, additional reporting by Holger Hansen Editing by Douglas Busvine, James Drummond and Christina Fincher)