"I decided to call for early presidential and legislative elections," Abbas said to applause during an eagerly awaited speech in Ramallah to lay out his plans for ending a spiralling political crisis.

"Basic law stipulates that the people are the source of power," he said. "Let the people have their say and decide."

"I will talk as quickly as possible with the central elections commission to launch the preparations" for the ballot.

The hardline Islamist Hamas movement, which has only been in power since March, immediately rejected the move.

The Hamas-led government said Abbas's actions were "a coup d'etat against the will of the Palestinian people."

Hamas official Ismail Raduan told AFP "we reject the call by president Abbas to hold early elections, as this contradicts Palestinian basic law."

The Palestinian Basic Law, the effective constitution, does not address the issue of early elections.

Hamas says the absence of such a provision prohibits holding early polls, while the Abbas entourage says such an election can be held since there is no passage specifically prohibiting it.

The current Palestinian parliament was elected in January and is due to remain in office until the end of 2010.

Senior Abbas aide Yasser Abed Rabbo said the elections "will take place between now and three months.

"All legal opposition to these elections will be examined in conformity with the president's powers," he said.

During an impassioned speech, Abbas said he had the authority to fire the Hamas government and vowed to prevent civil war that some observers warned would break out if he chose to call early polls.

"Firing the government is a constitutional right that I can exercise when I want," he said.

"Despite the suffering, the pain, the confrontations, whoever is responsible for them, we will not allow ourselves to sink into a civil war," Abbas said. "Palestinian blood will remain a border that will not be crossed."

The announcement by Abbas was greeted with cheers and celebratory rounds of gunfire into the air from supporters of his Fatah party in Gaza City.

During his speech, Abbas slammed militant groups in the coastal strip, where Hamas is extremely popular, for continuing to fire rockets into Israel after the Jewish state pulled troops and settlers out last year.

"Israel said bye-bye to the Gaza Strip, so let us leave the Gaza Strip ... to investment... but yet there are those who until now insist on firing the rockets ... I am sure that's not in the national interest of our people," he said.

"The Gaza Strip could have become an area to import workers from abroad, but we see the Gaza Strip living in poverty and unemployment," he said.

Abbas's call came after a week of rising tensions and violence between Abbas's Fatah party and Hamas, and after months-long talks between the two rival groups over forming a government of national unity collapsed.

The standoff has paralyzed the Palestinian administration since Hamas took office in March, prompting a freeze on financial aide from the West, which considers the group a terrorist organisation.

The coalition government talks collapsed over Hamas's steadfast refusal to bend to Western demands that it recognize Israel and agree to renounce violence and to past peace deals, and over allocation of key ministerial posts.

World powers are expressing increasing concern over the situation.

Russia, a member of the diplomatic Quartet for Middle East peace, called on the feuding Palestinian factions to "keep calm and show restraint".

Outgoing UN chief Kofi Annan said he was "deeply concerned" about the growing turmoil.

And British Prime Minister Tony Blair said the coming days would be crucial for the dormant Middle East peace process.

Blair, spoke Saturday as he left Ankara for Cairo during a regional tour that is expected to bring him to Israel and the Palestinian territories.

"The next few days and weeks are a critical moment of decision for the whole of this process and there is nothing that people want to see more (than peace in the Middle East) anywhere in the world," Blair said.