The Israeli parliament will be dissolved and new elections will be called, Prime Minister Naftali Bennett announced.
Bennett has agreed that Foreign Minister Yair Lapid will take over as prime minister in the meantime.
A vote in the Knesset has been scheduled on the matter for next week.
In a news conference, Bennett said it wasn't an easy decision to disband the government, but he called it "the right decision for Israel."
He promised an orderly transition and outlined his government's accomplishments.
Lapid thanked Bennett, saying he had placed the country ahead of his personal interests.
"Even if we're going to elections in a few months, our challenges as a state cannot wait," Lapid said.
"We need to tackle the cost of living, wage the campaign against Iran, Hamas and Hezbollah, and stand against the forces threatening to turn Israel into a non-democratic country," he said.
How did it come to this?
Lapid and Bennett formed a coalition government, along with several other parties, in June 2021, ending two years of political stalemate as Benjamin Netanyahu repeatedly failed to form a government.
The coalition consisted of right-wing, liberal and Muslim Arab parties and was bitterly divided on key issues. Bennett has struggled to maintain order in the coalition, with defections robbing the alliance of a parliamentary majority for more than two months now.
The two leading coalition partners released a statement reading: "After exhausting all efforts to stabilize the coalition, Prime Minister Naftali Bennett and... Yair Lapid have decided to submit a bill" dissolving parliament "next week."
The broad coalition was formed to oust longstanding former Prime Minister Benjamin Netanyahu, who is now the opposition leader. Netanyahu's coalition had emerged from a series of elections as the largest party, but without a majority, with his attempts to govern rapidly breaking down after each vote.
The new elections — the country's fifth in three years — are expected to be held in October or November.
