Aides said the President would seek to call elections as soon as possible, after deadly clashes between his Fatah faction and Hamas in the Gaza Strip.

PM Ismail Haniya, of Hamas, said that Mr Abbas' decision was hasty and vowed to continue working for unity.

Hamas says it is in total control of Gaza, taking the presidential compound.

More than 100 people have died on the streets of Gaza during a week of factional battles between Fatah and Hamas.

After dismissing the government, Mr Abbas will now rule by presidential decree until the conditions are right for elections, a senior aide announced.

The crisis has now prompted the European Commission to suspend humanitarian aid to the Gaza Strip.

Hamas, an Islamic organization, won a surprise victory in Palestinian elections in early 2006 but has since been engaged in a violent power struggle with Fatah.

Fatah, a secular political grouping headed by Mr Abbas, ran the Palestinian Authority until 2006 and officially recognizes the Jewish state.

Fatah and Hamas had gone into government power-sharing deals in an effort to overcome their differences but these were plagued by violence between their supporters.