"It is with a heavy heart that the MDC has decided to participate in the elections," Movement for Democratic Change's spokesman Paul Themba Nyathi said on Thursday.
"We participate to keep the flames of hope for change alive," he said of the 31 March elections, widely seen as a test of Mugabe's commitment to democratic electoral reforms.
Formed in 1999, the MDC says it would have won parliamentary elections held in 2000 and a presidential vote two years later had it not been for electoral fraud and a campaign of violence against its supporters by Mugabe's ZANU-PF party.
The MDC says electoral changes made so far, including the appointment of an independent electoral commission, still fall short of standards set by the 13-member regional bloc, the Southern African Development Community (SADC).
MDC leaders announced the decision after a two-day meeting to review the political situation in Zimbabwe, concluding that Mugabe's government had "failed dismally" to comply with the SADC electoral guidelines.
Political strife has often broken
out into violent demonstrations
The party listed a number of complaints, ranging from political violence and media curbs to gerrymandered constituencies and incomplete or inaccurate voters rolls that it says will end up favouring ZANU-PF.
"More than ever the electoral playing field remains uneven and unequal," Themba Nyathi said. "Clearly, therefore, a free and fair election is not possible in Zimbabwe under the present conditions."
Mugabe, who turns 81 this month, denies rigging recent elections and has condemned the MDC as a stooge of Western powers out to unseat him over his forcible redistribution of white-owned commercial farms to landless blacks.
Opposition chief Tsvangiria seeks
election reforms to be enacted
ZANU-PF spokesman Nathan Shamuyarira said the ruling party was ready to take on the opposition at the polls.
"We know that the MDC's foreign donors have advised them to participate. We are ready to go into battle with the MDC and we are hopeful of winning the election," he said.
South Africa, Zimbabwe's most important regional ally, on Thursday praised electoral reforms in Zimbabwe as "positive developments" and said it was doing all it could to ensure that the SADC guidelines were adhered to.
A team of SADC electoral experts is expected to visit Zimbabwe shortly to inspect preparations for the polls.