The main parties have been locked in battle with Zeman since June, when he named ally Jiří Rusnok, against their wishes, to head a new cabinet after the previous centre-right government collapsed under the weight of a spying and bribery scandal.
Squabbling has crippled policymaking for nearly two months as the economy struggles to recover from recession.
Zeman accepted the resignation and said Rusnok, an economist, would stay on in a caretaker capacity "until the formation of a new government which I hope will come from a free election".
Leftists parties stand the best chance of winning an early election, according to opinion polls, a result that could return the Social Democrats to power for the first time since 2006.
The lower house will meet on 20 August and is expected to vote on a motion to dissolve parliament.
Zeman will then be expected to dissolve the house within a few days and call a new election within 60 days, possibly in mid- to late-October.