"The government will function in a reduced capacity until the elections are held," Kostunica said.
Tim Judah, an expert on the Balkan's, told Al Jazeera: "There has been a definite crisis in the government since February 17 when Kosovo declared independence."
He said that fresh elections would decide "Serbia's fate" and whether the country "moves towards Europe and the European Union, or goes back into isolation arguing that the fate of Kosovo and the return of Kosovo to Serbia is more important".
Kostunica has suggested some of his coalition partners gave up on defending Serbia's claim to Kosovo in favour of better ties with the West, which backed the territory secession on February 17.
Serbia's Tanjug state news agency quoted Kostunica on Friday as saying he "no longer trusts his coalition partners, the Democratic Party and G17 Plus party, to be sincerely fighting to preserve Kosovo".
His stand has found himself in direct conflict with elements within the government, including Boris Tadic, Serbia's president.
Kostunica's Democratic Party of Serbia (DSS) says it would support a resolution in parliament, calling on the EU to "clearly and unambiguously" confirm Serbia's territorial integrity, as a condition for further European integration.
Tadic's Democratic Party opposed the resolution in cabinet earlier this week and with their partner, the G17 Plus party, defeated it two-to-one.
Those who support EU membership say the resolution would not bring back Kosovo and only serve to halt Serbia's plans to join the EU.
Kosovo, a predominantly ethnic Albanian province, had been under UN control since 1999, when Nato launched an air raids to stop a Serb crackdown on ethnic Albanian separatists.
But Serbia, which considers the territory its historic and religious heartland, has rejected Kosovo's move as illegal under international law.