The move buys her some time to try to resolve the crisis and avoid the no-confidence motion.
The decision was an apparent attempt to save her nine-month-old coalition from defeat in a no-confidence vote.
"We will challenge this unexpected travesty of democracy on the streets," Ravi Karunayake of the main opposition United National Party said.
The government, which lost its majority last month when a Muslim party defected to the opposition, said the parliament would now reconvene on 7 September.
President Kumaratunga also called a referendum on a new constitution for 21 August, a government statement said.
"This proposed referendum is a joke," a spokesman of the Tamil Eelam Liberation Organisation, which has three seats in parliament, said.
The combined opposition has 116 seats against the government's 109 in the 225-member house.
Political crisis
The surprise move came as the opposition united on Tuesday to present a petition to Speaker Anura Bandaranaike. It called for a debate on the no-confidence motion on 18 July and a vote the same week.
Since the ruling People's Alliance lost its slim majority in parliament, there has been much speculation that the president would use her powers to suspend parliament, says the BBC correspondent in Colombo.
The move buys her some time to try to resolve the crisis and avoid the no-confidence motion.
Suspending parliament is the only option available to the president, because under Sri Lanka's constitution she cannot dissolve the house until one year has passed since the last elections.
That means this parliament has to continue until at least mid-October before fresh elections can be called.
So when parliament reconvenes, there is likely to be a fresh batch of political uncertainty, unless the president can woo back disgruntled allies in the interim period.
Unstable system
A statement from the Information Ministry said the problem was the current electoral system which had distorted the governing coalition's mandate in parliament, putting the country on the brink of disaster.
"Although the Alliance won... at the last two elections, that mandate is not properly reflected in parliament due to the electoral system associated with the very same constitution," the government said.
Sri Lanka's election system is a complex mixture of proportional and electoral representation under which the party that wins the most number of constituencies is not guaranteed a majority in the house.
The statement says the referendum question will be: "Are you agreeable to the proposal that the country needs a constitution which is a national requirement and a national prerequisite?"
However, the statement did not say what form the new constitution would take.