Merritt was found unresponsive on Friday afternoon and taken to the Royal Prince Alfred Hospital in Camperdown.
The 40-year-old was allegedly at his auntie's residence and reported to have had a devastating reaction to consuming prescribed pain, according to The Daily Telegraph.
The club confirmed he is in a serious condition.
"Nathan is in the thoughts and prayers of every Rabbitoh at the moment," Souths CEO Blake Solly said on Saturday.
Merritt played in the Koori Knockout last weekend on the NSW Central Coast and onlookers claimed the winger sustained a concussion during a game.
It has not been confirmed whether the head knock is related to his condition.
One of South Sydney's most popular players, Merritt retired as the most prolific try-scorer in Rabbitohs history with 146 tries in 218 matches from 2002 to 2014.
He also had a one-year stint at Cronulla in 2004 before returning to Souths.
The winger's 218 appearances is fourth all-time for the Rabbitohs, while his 154 career tries are the equal-12th most of all time.
Merritt, a Redfern local, also represented at the highest level with one appearance for NSW in the 2013 State of Origin series, two Australian Prime Minister's XIII appearances and two City Origin appearances.
He also represented the NRL Indigenous All Stars three times and was awarded the Preston Campbell Medal for his man-of-the-match performance in the 2012 Indigenous All Stars game.
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