A general election is to be held in Spain on 20 November, four months earlier than expected.
Prime Minister Jose Luis Rodriguez Zapatero said on Friday this would enable a new government to confront Spain's economic problems from January.
Earlier, a credit rating agency warned it might downgrade Spain's rating due to weak growth prospects.
The opposition Popular Party argues that a change of government is the only way to recover market confidence in the country.
Mr Zapatero will not be seeking a third term as prime minister. Opinion polls suggest the Socialist Party - now led by former Interior Minister Alfredo Perez Rubalcaba - will lose.
The government's borrowing costs have risen in recent weeks, despite agreement on a second EU bailout package for Greece.
Mr Zapatero said he was calling an early election in order to ''project political and economic certainty'' over the months to come.
The BBC reports he made the announcement after a speech in which he stressed that the economy was on the road to recovery, citing seven consecutive quarters of growth, and a recent decline in unemployment.
But 46% of young Spaniards remain out of work - and the overall unemployment rate is twice the European average. There is concern too over the level of debt in the regions.
Moody's on Friday warned that it is putting government debt on review, for a possible downgrade from Aa2 to Aa3.
