"Therefore, I have decided to have an early presidential election. I am not afraid to go before the people now."
The date for the election is due to be set by the election commissioner in the coming days, although local media said that the poll may take place on January 23.
The island-nation's constitution states that Rajapaksa can actually serve out the final years of his first term regardless of the election result, which comes ahead of parliamentary polls in five months.
General Sarath Fonseka, the country's former military chief, will challenge Rajapakse in the elections, a key leftist opposition party announced on Tuesday.
The JVP, or People's Liberation Front, which had earlier backed Rajapakse, said they secured agreement with Fonseka, 58, to stand against Rajapakse.
"We came to an agreement last night (Monday) that he will be the common opposition candidate," JVP legislator Anurakumara Dissanayake said. "We will ensure his victory and the downfall of President Rajapakse."
Fonseka resigned as chief of defence staff last week following a rift with Rajapakse over who should take credit for crushing separatist Tamil Tiger rebels in a government offensive that ended in May.
The government is keen to take advantage of their military victory, which ended the Tamils' fight for a separate ethnic state in the northeast of the country.
The conflict began in 1983 and killed more than 70,000 people.