It is a result that some fear could jeopardise Greece’s international bailout.
Parliament has failed to choose a new president, rejecting the ruling coalition’s nominee for the post, the former European Union commissioner Stavros Dimas.
The country now faces early elections, as required under Greek law, and that is expected within the next month.
This is dangerous for the Greek Prime Minister Antonis Samaras and his conservative centre-left coalition.
Leading the opinion polls is the left-wing Syriza party, which is vowing to renegotiate Greece’s international bailout and roll back controversial austerity measures.
Euronews correspondent in Athens Giannisis Stamatis said most observers saw the snap election as a referendum: either continue with economic reforms agreed to with the EU and the IMF, or go on a collision course with international creditors.
Greek share prices slumped on news of the snap election, with a knock-on effect in other European stock markets.
The IMF says discussions with Greece on carrying out a review of the country’s bailout will resume once a new government is in place.
Stavros Dimas fell short of the 180 vote majority needed to become president.
In a third and final round of voting, Dimas scored 168 votes, the same result he achieved in the 2nd round.
The coalition needed the support of smaller parties and independents, but the ruling coalition failed to get the numbers despite weeks of campaigning and lobbying.
Meetings had been held over the weekend with some independent MPs, but media reports had already cited coalition sources as saying achieving the target would be difficult.
Ruling party officials had also denied some reports that the government had been in talks with lawmakers from the right-wing Golden Dawn party, which is under investigation by the police.
Dimas was quoted as saying that under no circumstances would he accept to be elected president with votes from Golden Dawn.
Samaras says he will see the outgoing president, Karolos Papoulias, on Tuesday, and will seek an election as soon as possible.
Officials have said the earliest date in terms of practicalities and logistics is January 25, but some earlier reports said a more likely date was early in February.
One recent opinion poll over the weekend put Syriza ahead of Samaras’ New Democracy party by 3.3 points.
The markets have been jittery over fears the EU and IMF bailout could be derailed by Syriza coming to power.
Samaras: People will learn where irresponsibility of opposition leads & what interests it serves #Greece— Nick Malkoutzis (@NickMalkoutzis) December 29, 2014
Goodbye Samaras, says Syriza website as snap Greek elections loom pic.twitter.com/uzptrCdYj3— Bruno Waterfield (@BrunoBrussels) December 29, 2014
European stocks drop as Greece’s ASE tumbles after vote results http://t.co/JrcXN7krDb— Kathimerini English (@ekathimerini) December 29, 2014
Greece heads to early elections, faces political uncertainty after presidential vote fails: http://t.co/zdcLHs1dFp— The Associated Press (@AP) December 29, 2014
Greek elections it is. This explains why Greece no longer threatens euro zone survival. But expect some jitters! http://t.co/IRCWwft82e— Mike Peacock (@MikePReuters) December 29, 2014