The crisis was brought about by center-left Prime Minister Romano Prodi's resignation two weeks ago after he lost a no-confidence vote, while efforts to form an interim government failed.
The speaker of Italy's Senate, Franco Marini, informed the president that he had been unable to secure enough support to form an interim government.
A new election is to be held within 70 days from the dissolution of parliament, with April 13 seen as the most likely date.
Prodi will continue as caretaker prime minister until the elections. He said he would not run in the new elections, but would be endorsing the Democratic Party.
Analysts predict that the main center-right opposition leader Silvio Berlusconi has enough support to return to office.
The date for the elections will be decided at a Cabinet meeting at 12:00 GMT.
