The Aam Aadmi Party leader made the announcement at a rally here this evening after a day-long roadshow around teh city during which an egg and ink was thrown at him at two places.
While declaring his candidature, he attacked Modi, accusing him of being an "agent" of industrial houses and said that a myth had been perpetuated about the development in Gujarat.
He also targeted Rahul Gandhi, saying the 'shahenshah' (emperor) of Congress was also like Modi.
"I want to ask you whether I should contest from Varanasi against Narendra Modi. I am ready to accept this challenge," the former Delhi Chief Minister announced after a day-long road show in this constituency of Uttar Pradesh.
"Why do I want to contest from Varanasi, it is because at a time when leaders look for safe seats to fight elections, I take on them to defeat them," he added.