The head of Israel's largest Kadima Party Tzipi Livni said she would recommend holding an early parliamentary election following her failure to form a new coalition.
Confirming in person what aides had said a day earlier following the apparent collapse of coalition negotiations, she was quoted by Yedioth Ahronoth newspaper as saying: "When I had to decide between continued extortion and bringing forward elections, I preferred elections."
Ms Livni is foreign minister and took the leadership of the ruling Kadima party last month after Ehud Olmert said he would resign as prime minister following a corruption inquiry.
She still has a further week of a presidential mandate to form a government.
But she told Maariv daily the negotiations were over: "I will not let them extort me. We will go to elections."
The main obstacle to largely renewing the coalition that has supported Mr Olmert was a refusal of the Jewish religious Shas party to follow Ms Livni.
It had sought guarantees she would not agree to share control of Jerusalem with the Palestinians and also wanted higher welfare benefits for its poor constituency.
A vote would most likely be held in late January or February, commentators say, more than a year ahead of schedule.
Ms Livni has the support of the Labour party but is short of a majority.
Her decision means an election is likely in late January or February.
The next parliamentary poll had been scheduled for 2010.