"After listening to opinions from all sides, I have decided to request a royal decree to dissolve Parliament," Yingluck said in a televised address. (Agencies)
"There will be new elections according to the democratic system," said the 46-year-old Prime Minister who came to power in 2011.
Election Commission (EC) member Sodsri Sattayatham said a general election to elect the 500-seat lower house will be held within 60 days, or before February 2, 2014. Under Thai election law, fresh polls must take place in the next 60 days.
However, anti-government protesters, who have been calling for Yingluck's government to be replaced with an unelected "People's Council", said the rallies will continue.
Protesters accuse the prime minister of acting as a proxy for her fugitive brother and former premier Thaksin Shinwatra. Suthep Thaugsuban, the top leader of the anti-government protests, said demonstrators would "blow the final whistle" in an attempt to uproot the "Thaksin influence" from the country.
Over one lakh protesters besieged Government House this morning, prompting the authorities to cancel a plan to invite foreign diplomats to observe the situation there.
Yingluck on Monday said she will remain the head of the interim government. "The situation seems likely to escalate to violence so the government has decided to return power to the people and let them decide through elections," she said.
However, protest leaders Satit Wongnongtaey and Tavorn Senieum demanded her resignation following House dissolution. Satit told protesters that House dissolution was only the first victory but was not enough for achieving real democracy.
He said the anti-government People's Democratic Reform Committee led-by Suthep wants the "People's Council" to be formed and the caretaker cabinet to resign.
Meanwhile, Deputy Prime Minister and Foreign Minister Surapong Tovichakchaikul said he believed Yingluck would run in the next election although she had not yet spoken about it.
Protest leaders, most of them former opposition Democrat MPs, however, said that the setting up of a "People's Council" was necessary to ensure that "Thaksin Regime and its servants will not return".
"After listening to opinions from all sides, I have decided to request a royal decree to dissolve Parliament," Yingluck said in a televised address.