The Jharkhand Mukti Morcha (JMM), which took the decision Monday, formally handed over a letter to Governor Syed Ahmad saying it was pulling out of the BJP-led coalition government.
With the government reduced to a minority in the 82-member house, the JMM questioned the cabinet recommendation to dissolve the assembly.
"When we have withdrawn support, how can a minority government take such a decision?" asked Hemant Soren, the deputy chief minister in the outgoing government.
On Tuesday morning, a cabinet meeting attended by seven of 12 ministers took the decision to have the house dissolved, Munda told reporters.
The meeting was attended by ministers from the Bharatiya Janata Party, All Jharkhand Students Union (AJSU) and Janata Dal-United. JMM ministers kept away.
Soon after, the JMM formally withdrew its legislative support. JMM chief Shibu Soren, his son Hemant Soren and others met the governor.
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Munda said: "I handed over my resignation and apprised the governor about the cabinet decision. A fresh mandate is the only way out for a stable government."
Relations between the JMM and BJP have been strained ever since Munda denied there was an agreement between the two parties on sharing the chief minister's post.
The JMM had wanted the post midway through the five-year term of the assembly.
AJSU chief Sudesh Mahto and Jharkhand Vikas Morcha-Prajatantrik (JVM-P) chief Babulal Marandi demanded fresh elections.
Of the 82 legislators, 37 are in favour of a new mandate.
The 37 include 18 of the BJP, six of AJSU, two of JD-U and 11 of JVM-P.
JMM is exploring the possibilities of forming a government in the state with Congress backing.
Jharkhand Congress president Pradeep Balumuch said the Congress would consider backing the JMM if it tries to form a new government.
Jharkhand Congress legislators, RJD and some independents favour forming a new government.
If the Congress, RJD and independents support JMM, then 41 legislators would be in a position to try cobbling a coalition.