The move followed the resignation of all opposition MPs from parliament on Sunday, and a planned march on Government House on Monday.
Yingluck Shinawatra won elections in 2011.
However, the protesters allege Yingluck Shinawatra’s government is controlled by ousted leader Thaksin Shinawatra, and have vowed to continue the demonstrations.
The announcement came as Yingluck Shinawatra addressed the nation on television.
“The government does not want any loss of life,” she said.
“At this stage, when there are many people opposed to the government from many groups, the best way is to give back the power to the Thai people and hold an election,” Yingluck Shinawatra said.
“So the Thai people will decide.”
No date was given for the polls but Yingluck Shinawatra said they would be held “as soon as possible”.
In the general election in July 2011, Yingluck Shinawatra ‘s Pheu Thai party won a majority, with 265 seats to the Democrat Party’s 159 seats.
Under Thailand’s electoral regulations polls must be held within two months of parliament being dissolved.
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