Erdogan called the snap polls yesterday after an inconclusive June 7 legislative vote where his ruling party lost its overall majority in one of the biggest setbacks of the Turkish strongman's career.
The elections will take place at a critical moment in the country's modern history as the government battles Kurdish rebels in a hugely controversial air and land campaign.
In an unusual twist, the caretaker cabinet will see the ruling Islamic-rooted Justice and Development Party (AKP) forced to work alongside pro-Kurdish forces despised by Erdogan.
Erdogan asked Davutoglu to lead the caretaker government during a meeting at his presidential palace, the presidency said.
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Davutoglu now has five days to form a government that will be in power for just two months and which will lead Turkey into new elections.
The premier said the situation is "unprecedented in Turkish history": never before have parties failed to form a coalition after elections and new polls been required.
"But we shouldn't create the impression that Turkey is going through a political crisis," Davutoglu told reporters after meeting Erdogan.
This forces Davutoglu to form an interim cabinet with the pro-Kurdish Peoples' Democracy Party (HDP) as well as non-partisan figures outside parliament.
The prospect of forming a government -- however brief -- alone with the HDP is an alarming prospect for Davutoglu and Erdogan who have accused the party of being a front for outlawed Kurdistan Workers Party (PKK) rebels.
Davutoglu expressed dismay that the CHP and MHP had vowed to stay out of the caretaker government.
"Escaping responsibilities and blocking the options would lead to unintended consequences," he said.