Mr Tsipras will lead his leftist Syriza party into the polls, but his party divided when some members were angered at his government's acceptance of austerity measures to get an EU bailout.
It's the third time this year Greeks are going to the polls.
This time, they will decide whether or not they want Prime Minister Alexis Tsipras to continue as their leader through one of the most difficult periods in their economy's history.
Mr Tsipras announced the early elections in an address on national television.
"You must decide if we have taken the right decision for the final recovery of the economy and to overcome this austerity of the strict measures that were imposed on us. You, with your vote, will decide who will lead Greece down the difficult road ahead of us. Who will negotiate the best way of reducing the debt. Who and how will we be able to march forward with steady steps and make the changes that the country needs. You with your vote will judge us."
The announcment comes as Greece received the first 13 billion-euro batch of the bailout package.
It allowed Greece to repay a 3.2 billion-euro debt to the European Central Bank and avoid a messy default.
Athens resident Nikos says it's a step in the right direction.
But he remains cautious.
"I think that the economic situation has had a positive step up but the fact that we got the first instalment does not mean that we have finally solved the problem of the debt. Further than that only the future will tell, and the people are very insecure."
While Mr Tsipras argues this election is about bringing certainty to Greece's future, he's aware in the short-term it's likely to create political uncertainty and bring fresh jitters to the financial markets.
His announcement was made after European markets closed.
But Greek financial analyst, Evangelos Sioutis, says speculation about the snap poll sent Greek equities down 3.5 per cent during the day.
"This on a day that we have the first tranche from the new deal between Greece and its creditors, the payment of the bond to the European Central Bank and this is explained because the Greek stock market is coming into a new circle of uncertainty while we are waiting new elections to be announced, and every election is a factor of uncertainty for the stock markets and makes investors insecure, and this is why we see this fall today."
AlexisTsipras has only been Prime Minister for seven months.
He says he's asking Greeks to support the way he is trying to lead the country out of its financial crisis.
That includes spending cuts and tax rises, opposed by a number of hard-left MPs within his own Syriza party.
He lost his parliamentary majority after a rebellion by hardliners.
Athens-based political analyst Dimitris Rapidis says Mr Tsipras is seeking a new mandate.
Re-election may allow him to take control of the political left and bolster his parliamentary majority.
"Well, the fact is that Greece is already in a big mess. It is going deeper down to a huge political economic limbo. I don't think that in terms of economic stability - even if I am not sure if we have something like that - it's not a good decision, it's not the best decision for the government, but you know that politics come first and Tsipras wanted to solidify, to re-emerge as the leader of the centre-left and the left as well sweeping all the political spectrum and take it on his side."
Mr Tsipras has remained relatively popular with Greek voters, with a recent poll giving him an approval rating of 61 per cent.
The same Metron Analysis poll showed Syriza's popularity, at 33.6%, is ahead of the conservative New Democracy party at 17.8%..
But market analyst for foreign exchange trader Oanda, Craig Erlam, says it's still a gamble.
"Will the people vote in the more hard-left liners who are going to battle Europe? This is the risk with Greece still and I don't think anyone at this stage is really of the opinion that this Greece story can fall into the background and resolve itself."
The election date is yet to be set but early reports suggest it could be as soon as September the 20th.
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