The threat - and Seehofer's subsequent warning he may resign - had raised the spectre of an imminent break in the seven-decade-long partnership between their conservative CDU and CSU parties.
Angela Merkel ensured her coalition government will remain intact after after striking a last-minute deal on Monday over Germany's migration policy.
At the national level, Merkel proposes that migrants arriving in Germany who first registered in another European Union country should be placed in special "admission centres" under restrictive conditions, according to a document she sent to the CSU and SPD.
The Austrian chancellor welcomed the "important turning point" reached by the EU, with the priority now on the need to tackle arrivals on European coasts.
In effect, the likely outcome of the deal is as Dr Merkel wished - a European one.
Merkel, Seehofer, Nahles and senior members of their parties met in the chancellery on Tuesday evening to discuss the plan.
Under the new deal, migrants who have already applied for asylum in other European Union countries will be held in transit centres on the border while Germany negotiates bilateral deals for their return.
German Interior Minister Horst Seehofer, of the Bavarian party, has been pushing for tougher measures on illegal immigration and presented the deal as a victory. But a dearth of credible challengers to lead her Christian Democrats (CDU) and a general fear among many Germans of the far-right keep her hanging on, possibly even to the next election in 2021.
Spain 1 Russian Federation 1 (aet, 4-3 on penalties)
Some will criticise them for playing with such little ambition, but Russia's defensive play was extraordinary. Spain made 1,137 passes and completed 1,029, according to Federation Internationale de Football Association .
The divisions within the German government over the issue are also being played out in other European Union countries, and three countries later said they were not part of the German deal: the Czech Republic, Hungary and Poland.
Merkel's CDU relies on the CSU to maintain power through a coalition.
In addition, Knaus said, the emphasis on transit centres would mean Bavaria bearing most of the administrative burden of registering and processing refugees and migrants who arrive in Germany. "And as a result we will see a crash - damaging both parties." .
Crucially for Merkel, CDU lawmakers are backing her - so far.
Ms Merkel's new position immediately drew criticism from those on the left.
Merkel has never appeared rattled over the last stressful two weeks, and people who work with her say she was focused and relaxed in negotiations and did not lose her sense of humour.
However, the more conservative CSU believes its credibility is at stake as it tries to curb support for the rival anti-migration Alternative for Germany party in the Bavarian election.
Nevertheless, the anti-refugee, anti-Islam Alternative for Germany (AfD) was propelled into federal parliament for the first time previous year by outrage over immigration, leading to months of paralysis while Merkel struggled to put together a workable coalition.