Italy is to hold early national elections on 13-14 April, just two years after its last parliamentary vote, a cabinet minister has said.
Mr Prodi will be replaced as the centre-left's candidate for PM
The news came hours after Italian President Giorgio Napolitano dissolved parliament, following unsuccessful talks to form an interim government.
The political crisis was triggered by last month's resignation of centre-left Prime Minister Romano Prodi.
Mr Prodi, currently Italy's caretaker PM, lost a Senate confidence vote.
The BBC's Christian Fraser, in Rome, says the early election paves the way for a return to power of the opposition leader and former prime minister Silvio Berlusconi, who is at least 10 points ahead in the opinion polls.
Mr Berlusconi, Italy's richest man has already begun campaigning unofficially, our correspondent says.
The early election date was announced by outgoing Transport Minister Alessandro Bianchi.
Mr Prodi's centre-left coalition was defeated in the Senate in January - soon after the small centrist Udeur party left the government.
Silvio Berlusconi hopes to beat the centre-left bloc
President Napolitano then asked the Senate Speaker, Franco Marini, to put together an interim government with a mandate to reform the electoral law that was widely blamed for the current instability.
Under the current proportional representation system, smaller parties with only a handful of seats hold the balance of power in parliament. There are currently 39 parties in the Italian Parliament.
But after several days of intense talks Mr Marini admitted he had failed to convince the centre-right opposition.
Mr Berlusconi had insisted during the crisis talks that only early elections could end the political crisis.
Meanwhile, Walter Veltroni, the mayor of Rome, is widely expected to replace Mr Prodi as the centre-left's candidate for prime minister.
Mr Veltroni has signalled that he wants his new Democratic Party to run alone without the support of the other centre-left parties, our correspondent says.
If this happens, analysts predict he will win a greater share of the vote.
But it would mean Mr Berlusconi's coalition will almost certainly be assured victory, our correspondent says.