Next year's elections, expected to be held on March 4, may mark a new era of uncertainty for the country.
With the vote expected to be split between the right, centre-left and the populist Five Star movement, the next parliament could be left without a clear majority.
But in a country that has had 64 governments since 1946, instability is nothing new.
Prime Minister Paolo Gentiloni is the third leader of the parliament that was elected in 2013.
Gentiloni visited Mattarella on Thursday to announce that work was finished on adopting the 2018 budget, which passed last week.
Mattarella then "signed a decree dissolving the Senate and the chamber of deputies," according to a statement from his office.
Italian Prime Minister, Paolo Gentiloni (C), leaves by car at the end of the meeting with the Italian President Sergio Mattarella, in Rome, Italy. Source: AAP
Earlier on Thursday, he moved to reassure the nation in a news conference taking stock of his year in office.
"Things that were born a little strangely, as in the case of this 17th legislature, prove to be rather fruitful over time. The truth is that Italy has recovered after the most serious crisis of the post-war era," Gentiloni said.
"Italians know that in the coming weeks the spotlight will be on the election campaign, as is normal," he said.
"But I assure you, my dear fellow citizens, that the government will not slow its pace. Within the limits set by the constitution, by law, the government will govern."
