Abbas said the elections should be held at the earliest opportunity. He said that in the interim period all efforts should be made to form a unity government made up of technocrats that could lift Western sanctions on the Hamas administration.
''I have decided to call for presidential and parliamentary election ... I have decided to call for early elections,'' Abbas said in a speech broadcast live on Palestine TV.
The governing Hamas Islamist movement immediately rejected Abbas's announcement.
''Our priority is to form a national unity government. It is the only solution. We reject anything which complicates the Palestinian situation,'' Wasfi Kabha, minister of prisoners affairs, said.
Abbas had earlier in his speech called for a political solution to resolve the crisis but made clear he had the right to sack the government.
Internal tensions are at their worst in a decade after months of talks between Hamas and Abbas's Fatah on forging a unity government foundered.
''The crisis is getting worse ... Without a political agreement, security will remain disturbed,'' Abbas said.
Abbas vowed there would be no civil war despite the recent violence. His forces wounded 32 Hamas supporters in Ramallah on Friday when they fired on protesters. Gunbattles between the factions also erupted in Gaza.
Hamas, which surprised Fatah to win parliamentary elections in January, has said it would regard any call for fresh elections as a coup. Abbas was elected separately in early 2005 in a presidential poll that Hamas did not contest.
REUTERS MS HS1749