The decision means the minority cabinet no longer has enough support in parliament, making elections inevitable.
The cabinet met for 1.5 hours on Monday morning to discuss the political crisis.
Most MPs say the general election should take place before the summer, because of the pressure to come up with a comprehensive package of spending cuts. They will debate the political crisis with prime minister Mark Rutte on Tuesday.
At the same time, opposition party leaders have said they are willing to work with the government to draw up a 2013 budget in order to at least partly meet demands by Brussels that the budget deficit be reduced to below 3% next year.
There are just seven days to go before the Netherlands should submit its spending plans although there is some flexibility in this, Nos television says.
A spokesman for European commissioner Olli Rehn told reporters on Monday Brussels expected the Netherlands would do all it can to meet its obligations.
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