Felipe Vega, the interior minister, announced the measure after Indian peasants intensified blockades on key roads in at least eight highland regions in protests that have cost Ecuador millions in lost commerce since they began last week.
The state of emergency forbids public gatherings and marches and sets curfews.
"The president took this decision after exhausting all other options for dialogue," Vega said.
The protests were the latest test for Palacio, a cardiologist with little political backing, who says he will not halt the trade negotiations. A strike this month by oil workers at Petroecuador, a state company, cut crude production.
Ecuadorean and US officials will meet in Washington on Thursday for the trade talks. Ecuador's Andean neighbours, Colombia and Peru, have already signed deals.
Indian protesters are demanding that the government abandon the talks, arguing that the trade pact will damage their livelihoods and way of life. Since protests began nine days ago, indigenous leaders have threatened to take their fight to the capital.
A man from the Amazonian
province of Pastaza protests
Luis Macas, the protest leader, told Telesur, a Caracas-based TV network, before the state of emergency: "We want the government to act with prudence ... What is more important, selling our country or holding on to our sovereignty?"
Palacio, who came to office 10 months ago after congress fired his predecessor, has faced a series of strikes and protests from provinces seeking more financing from the state before presidential elections in October.
Indians make up an estimated 30% of Ecuador's population of 13 million.