The Knesset on Wednesday voted by 74 to 45 to dissolve itself, setting Israel on the path to a snap election which is expected to take place in September, presstv.ir reported.
A special Knesset committee, which has been set up to prepare the potential Israeli elections, had earlier said the polls would take place on September 17.
Netanyahu won a fifth term in office in the April elections after his right-wing Likud Party won 35 of the Knesset's 120 seats. He had until 21:00 GMT on Wednesday to form a cabinet that controlled at least 61 seats in the 120-member parliament.
But despite weeks of negotiations, he failed to bridge the gap between secular and religious allies.
Netanyahu, whose fifth term in office has been jinxed, vowed on Thursday that his conservative party would win the new vote.
The coalition talks reached a stalemate over disagreements between ultra-Orthodox parties and Yisrael Beiteinu, a secular right-wing party led by former minister of military affairs Avigdor Lieberman, on a military conscription bill.
Following the Knesset decision, Lieberman wrote on his Facebook page that Likud holds responsibility for the repeat election because of its refusal to vote on bill to draft the ultra-Orthodox.
Netanyahu, however, said Lieberman misled his voters and is dragging the entire Israel into a new election "after he was the cause of the previous one too, just because he wants a few more votes, which he won’t get. It’s just unbelievable."
Netanyahu also said Lieberman is a man of the left, he brings down right-wing cabinets.