The move by Kuwait's Western-allied emir, announced on state-run media, followed a failed attempt last month by the government to overturn a voting district law that appeared to favor the opposition. New elections must now be held within 60 days.
Kuwait is one of America's most strategic Gulf military allies. Its strategic importance to Washington rose sharply after the U.S. troop withdrawal from Iraq in December. It is now the hub for U.S. ground forces in the Gulf region, where the U.S. and its Arab allies seek to counter Iran's military buildup.
Kuwait has been locked in a political limbo for months as the government tried to challenge the voting system in the February elections, which gave Islamists and allies control of the 50-seat parliament. A stopgap parliament, comprising lawmakers elected in 2009, was installed in June, but it never held any sessions.
Opposition leaders had called on Kuwait's ruler, Sheik Sabah Al Ahmad Al Sabah, to end the impasse and call new elections. Kuwait has the one of the Gulf region's most politically active parliaments. It often clashes with the government over policies and alleged corruption.
Oil-rich Kuwait has not faced widespread unrest since the Arab Spring uprisings erupted last year across the Middle East, but the country has been locked in deepening political battles and labor upheavals that have stalled many development plans.
Kuwait was hit by a wave of strikes earlier this year, including walkouts that grounded the state carrier, Kuwait Airways, and temporarily closed customs posts and left hundreds trucks stranded at the border.
Calls for better working conditions have grown louder in the wake of the Arab Spring uprisings. Kuwaitis are used to well-paid government jobs and cradle-to-grave benefits that increasingly have become a burden on state finances.