"I asked President Karolos Papoulias to disband parliament on Monday so that elections can be held on 4 October," Karamanlis said in a televised address.

Expected for weeks, the PM's move brings the curtain down on an embattled conservative administration barely halfway through its four-year term, hobbled by scandals and restricted by a majority of just one deputy in parliament.

In calling the election, Karamanlis said he sought a fresh political mandate as "two difficult years lie ahead" for the fragile Greek economy.

The leader of the socialist opposition, former foreign minister George Papandreou, is expected to respond in an Athens rally celebrating the party's 35th anniversary later on Thursday.

On Wednesday, the son of longtime prime minister and PASOK party founder Andreas Papandreou noted that the conservative New Democracy party had been entrusted with power in 2004 and 2007 and had failed.

"The government has collapsed under the very dead end that it created," Papandreou said, calling on the electorate to vote for a "new departure".

Opposition newspapers were scathing Thursday, while welcoming Karamanlis's decision to put his head on the electoral block.

"I failed: but vote for me again," was the headline in the socialist daily Ta Nea.

The neo-liberal Kathimerini was also critical.

"Mr. Karamanlis did not take the necessary (economic) decisions when he had a strong majority," it said.

That majority is down to just one vote after Karamanlis was forced to axe a lawmaker in a scandal over a property deal.

"It's a major political risk for Mr. Karamanlis, just two years after his return to power," economist George Pagoulatos told AFP.

"Public revenue is considerably reduced, borrowing has increased sharply to 60 billion euros, there is a real problem of liquidity and the government is having trouble drawing up the 2010 budget," he said.

With a 5.7 percent public deficit expected next year according to European forecasts, and a debt of more than 100 percent of GDP, both the International Monetary Fund and the European Union are pushing for structural reforms.

"Social discontent is on the rise, the unions have already announced a major mobilisation and the right looks set to take more blows," said political analyst Thomas Gerakis.

Some analysts pointed to the implications of a recent reform of the electoral law, which they said could lead to a period of political instability.

"It's not certain that a majority will emerge at the end of the elections and the winner may have to consider forming a minority government or a Germany-style coalition, which has never been seen before in Greek politics," said one senior European diplomat.

Karamanlis, who first became premier in March 2004 and was re-elected in September 2007, has seen his popularity dive.

In December he faced criticism as rioting erupted nationwide over the police killing of an Athens teenager.

In June's European elections, his New Democracy Party garnered the second worst EU vote tally in its history, while Papandreou's socialists registered their first victory in five years.

The most recent opinion polls suggest that PASOK leads New Democracy by around six percentage points.

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