After successfully merging lines (using snapping) with merge_selected_features i got nice result - one merged line. Next thing was to make polygon from created merged line. Result is not nice - it creates multiple polygons connecting ends from separate lines which were merged previously together. Somehow merging geometry is not working for me or i am missing something.
.. Solved. I imported lines in Grass, then i used v.build.polylines and got nice line from which i was able to create correct polygon.