Mr Vajpayee's term of office was scheduled to end in October
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India's cabinet has passed a resolution to dissolve parliament on 6 February to make way for early national elections.
Prime Minister Atal Behari Vajpayee then met President APJ Abdul Kalam later in the evening on Tuesday to tell him of the decision.
Mr Vajpayee's ruling BJP wants polls earlier than scheduled to capitalise on state election successes, a strong economy and improved Pakistan ties.
His term of office ends in October but polls may now be held in April.
India's independent Election Commission is responsible for setting the date of the polls.
Under the Indian constitution, the newly elected house has to meet within six months of the dissolution of the old house.
The commission is expected to decide on the election date soon.
After the schedule is finalised, the election process has to be completed within 45 days.
BJP resolution
The government said this month it was presenting an interim budget to take care of expenditure until polls were held - a sure sign it was pursuing an earlier date.
Sonia Gandhi leads the main opposition Congress party
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That followed a resolution taken at a BJP forum in Hyderabad urging the premier to go to the polls early.
The main opposition Congress party has branded such a move an act of "unprincipled opportunism".
India's lower house has 545 members elected to serve for five years.
The BJP has a number of elements in its favour for an early election.
The Indian economy is growing at a rate of 7% to 8% per year.
The stock markets are at a new high and so are foreign exchange reserves at more than $100bn.
A recent visit to Pakistan and an agreement for talks on the disputed region of Kashmir have also boosted Mr Vajpayee.
India's national elections take around six weeks to complete.