Israeli President Moshe Katsav says he has signed an order calling early elections for 28 March 2006 and dissolving parliament.
Mr Sharon's move has reconfigured Israel's political landscape
Polls initially set for November 2006 are being brought forward after Prime Minister Ariel Sharon split from his party and lost coalition support.
Mr Sharon said he was leaving Likud to form a centrist party that will pursue peace with the Palestinians.
Once parliament is dissolved, Mr Sharon will form an interim administration.
"I have already signed the decree that allows the dissolution of the Knesset and for elections to be held on 28 March," Mr Katsav told reporters.
Mr Sharon asked him to dissolve the parliament on Monday and the March date was agreed between the president and parliamentary speaker on Tuesday night, reports say.
Likud members meet on Thursday to set a date for electing a replacement leader.
Three of the Likud party's top brass have already announced they will contest the leadership - former Prime Minister Binyamin Netanyahu, Foreign Minister Silvan Shalom and Defence Minister Shaul Mofaz.
Launching his claim to head Likud, Mr Netanyahu described his long-term rival, Mr Sharon, as corrupt and dictatorial.
Several opinion polls in Israeli newspapers have suggested that Mr Sharon's breakaway party - which is to be called the National Responsibility party - could win the election.
But BBC Jerusalem correspondent James Reynolds says the election campaign is just beginning, and much may change in the weeks ahead.