The shock announcement follows a period of intense public feuding between the right-wing League and its coalition partner, the anti-establishment 5-Star Movement.
The leader of Italy's ruling North League party, Deputy Prime Minister Matteo Salvini, declared the governing coalition to be unworkable Thursday after months of internal bickering, announcing that the only way forward is to hold fresh elections.
In a statement, Salvini told Prime Minister Giuseppe Conte, who belongs to neither coalition party, that the North League alliance with 5-Star (M5S) had collapsed after barely a year in power and they "should quickly give the choice back to the voters."
The parliament, which is now in its summer recess, could reconvene next week to carry out the necessary steps, Salvini said, referring to the need for a no-confidence vote in the government and the resignation of the Premier Conte.
Tensions came to a head Wednesday when the two coalitions voted against each other in legislation over the future of a high-speed train link project with France.
The M5S has more parliamentary seats than the League, but Salvini's party now has twice as much voter support, according to opinion polls, and it has often threatened to try to capitalize on that surge in popularity with new elections.
However, pushing the nation back into election mode in August, when Italians are on holiday and parliament is closed for the summer recess, is unusual and could be unpopular and risky.
President Sergio Mattarella is the only person with the power to dissolve Parliament, and may be unwilling to do so ahead of preparatory work next month for the 2020 budget, which must then be presented to parliament the following month.
If Mattarella decides not to dissolve the legislature he could try to install an unelected "technocrat" administration of which there have been several examples in Italy's recent history, though an alternative parliamentary majority appears elusive.
M5S leader, Luigi Di Maio said his party does not fear elections.
"We are ready, we don't care in the least about occupying government posts and we never have," he said in a statement. He accused Salvini of "taking the country for a ride" and said sooner or later Italians would turn against him for it.
Speculation of a government crisis mounted late on Wednesday when Salvini, speaking at a rally south of Rome, peppered his speech with hints that he was tired of the 5-Star, accusing it of stalling the League's key policies.
The League issued a statement listing a raft of areas in which it had a "different vision" from 5-Star, including infrastructure, taxes, justice and relations with the EU.
The two parties were fierce adversaries ahead of an inconclusive election in March 2018, before forming their unlikely alliance which has often ruffled the feathers of financial markets and the European Union Commission.
5-Star was the largest party at last year's elections but it has struggled since the government was formed, while Salvini has prospered thanks to his popular racist line on immigration and a charismatic and informal "man of the people" public image.