Social Democrat Stefan Lofven announced the decision after lawmakers rejected his left-leaning minority government's first budget proposal.
A far-right party sided with the center-right opposition to vote against the budget with the aim of toppling the coalition that took office in October. 182 lawmakers voted against the budget in Parliament today, while only 153 voted in favor.
Lofven needs to wait until December 29 to officially call for the new elections according to rules set out in Sweden's Constitution.
Lofven became prime minister in October as head of a coalition with the Greens, promising to reverse many reforms by the previous center-right government.
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He accused the anti-immigrant party of wanting "to knock out any government that doesn't dance to their tune."
From the start, Lofven's minority government which has 138 seats in parliament was expected to struggle to push its agenda through. With the support of the former Communist Left Party, which stands outside the Cabinet, it controls 159 seats.