German President Horst Köhler gave the okay to dissolve parliament Thursday and called for an early general election on September 18, which polls show Chancellor Gerhard Schröder will lose.

"It is my duty as president to decide this issue according to the law," he told the nation in a televised broadcast. "I think it is best to have a new election to let the people decide."

The announcement came three weeks after Schröder engineered his own defeat in a parliamentary confidence vote in order to call early elections and one day before the expiration of the 21-day deadline he is allowed under the constitution to make the decision. His decision, one of the few real powers he has as ceremonial head of state, could be overturned by the constitutional court.

A government spokesman confirmed Schröder had cut short a holiday at his family home in the northern city of Hanover to return to Berlin.

Schröder had told parliament ahead of the vote that he wanted new elections to show if the German people still backed a set of sometimes painful social welfare reforms.

However, despite the go-ahead from Köhler, the decision faces a challenge from two members of parliament, one from Schröder's own Social Democratic Party (SPD) and another from the Greens, the SPD's coalition partner.

The SPD has suffered from plummeting polls all over the country, but Schröder's decision was prompted by a crushing defeat to the conservative opposition in the country's most populous state and one-time SPD stronghold, North Rhine-Westphalia, in May.

Merkel takes lead

Opinion polls show Schröder's conservative challenger, Angela Merkel, has a strong chance of becoming Germany's first woman chancellor -- the latest opinion poll gave her Christian Union bloc a clear lead of 17 percentage points.

Merkel is promising to slash Germany's unemployment figures, which topped five million this year, and inject new life into the euro-zone's biggest, but stagnating, economy.

Inevitably compared with Margaret Thatcher, Merkel has said she has "great respect" for the economic policies of the Iron Lady although her own program is likely to be less controversial.

Merkel has unveiled plans to create jobs and raise the value-added tax, a form of sales tax common throughout the European Union, to 18 percent from the current level of 16 percent.

"If I do nothing, the current developments will continue and ... lead Germany into a spiral of decline," Merkel said in an interview with the Financial Times Deutschland newspaper published on Thursday.

Merkel this week traveled to Paris to meet French President Jacques Chirac and the man who hopes to succeed him, the current Interior Minister Nicolas Sarkozy.

No backing from coalition

Since Schröder lost the confidence vote, Köhler asked him to provide more evidence of his claim that he no longer enjoys the backing of his coalition.

The chancellor replied with a 200-page dossier which included dozens of newspaper articles describing infighting within the coalition of SPD and Greens and interviews with some of his most outspoken critics.

The SPD's own Ottmar Schreiner, for example, repeatedly attacked the government's labor market reform drive because it had led to cuts in benefit payments for the jobless.

And MP Jelena Hoffmann, also SPD, confirmed on Thursday that she and Green party parliamentarian Werner Schulz would challenge a decision to dissolve parliament in the country's constitutional court because they wanted to serve their full terms which run until autumn 2006.

Vote "faked"

The opponents of the new elections argue that Chancellor Schröder's vote of confidence was "faked" because the chancellor still had a majority in the parliament.

The German constitution, which was adopted in 1949, makes it deliberately difficult for early elections to be called, and only under extraordinary circumstances.

One of the main goals of the 1949 constitution was to create conditions for political stability in the post-war period and prevent governments from rotating, the way they did in the 1920s and early 30s. It is widely believed that the political instability of the period of the Weimer Republic, when German had no less than 12 chancellors, led to the rise of Adolf Hitler.

Germans eager for early elections

The country, however, is very much in favor of new elections. According to a recent poll, 73 percent of the population believes the elections are necessary. A full 83 percent of Germans believe the new elections will bring a change of government, although 76 percent also believe that the new conservative government would not do a better job than the ruling coalition of Social Democrats and the Green party.

If elections go ahead, Schröder faces another headache with the creation of a new left-wing alliance which risks drawing working-class support away from the Social Democrats.