Israeli PM Ariel Sharon has said he aims to "lay the foundations for a peace settlement" with the Palestinians via his new political party.
Ariel Sharon's move changes the entire political landscape
Mr Sharon's comments came after he left the right-wing Likud party he helped found in 1973.
He has already taken enough Likud legislators with him to claim part of his old party's government funding.
But he has failed to woo Defence Minister Shaul Mofaz, who joins at least six others hoping to succeed him.
Mr Sharon said on Monday he was forming a "new national liberal" political party.
"Likud in its current format cannot lead Israel to its national goals," Mr Sharon said in a televised address.
He staked out claims to political ground on both the right and the left, calling for the dismantling of terrorist groups on the one hand and poverty reduction on the other.
Mr Sharon's announcement triggered a race to early elections.
He asked President Moshe Katsav to dissolve the Knesset, or parliament, but hours later parliament voted to disband itself.
The Knesset's move appears to be an attempt to wrest control of the elections timetable from the prime minister.
The date of elections remains to be decided, but it seems likely to be no later than 28 March - about eight months ahead of schedule.
Mr Sharon's move has redrawn the political map of the country, says the BBC's Katya Adler in Jerusalem.
At the next election, voters will be presented with three main choices - the Likud party on the right, the Labour party on the left, and Mr Sharon's new movement in the centre, our correspondent says.
Centre parties tend not to do well in Israeli politics, but no sitting prime minister has ever created a new centrist party before, Israeli political analyst Gershon Gorenberg told the BBC.
1967: Brigadier general during Six-Day War
1973: Elected to Knesset, helps found Likud
1981-83: Defence minister, masterminds Lebanon invasion
1990-1992: Housing minister, leads huge expansion of Gaza and West Bank settlements
1998-99: Foreign minister
2001-today: Prime minister
Late 2004: Agrees national unity government with Labour
Mr Sharon listed peace with the Palestinians and Israeli security as among the main goals of his party, tentatively called National Responsibility.
Mr Sharon upset many hardliners within Likud over his disengagement plan, carried out earlier this year, under which Israel unilaterally withdrew its settlers and soldiers from the Gaza Strip and parts of the West Bank.
Unlike many of his supporters, he never had a religious or ideological attachment to the land Israel was occupying, the BBC's Middle East editor Jeremy Bowen says.
Mr Sharon's only concern is Israel's security, he adds.
On Monday night he said there was no disengagement plan for the West Bank.
"We have the big settlement blocs that will remain forever in the hands of Israel and will be territorially connected to Israel," he said.
"There is no additional disengagement plan - there is the roadmap," he said, referring to the US-backed peace plan.
Senior Likud figures have already begun to downplay the significance of Mr Sharon's shock move.
"The Israeli voters will decide what they see as the possible ruling party in Israel: Likud, that has a long tradition of running this country, or a newly-formed party with no background, and probably no future," Likud legislator Yuli Edelstein told the BBC.
At least seven Likud members are jockeying to succeed Mr Sharon, with former Prime Minister Binyamin Netanyahu the front-runner.
Mr Sharon remains the most popular politician in the country, polls suggest.
A poll for the Israeli daily Haaretz suggests that 37% of Israelis wanted him as prime minister, as opposed to 22% for Amir Peretz, the new Labour leader.