The surprise move came after lawmakers in the oil-rich emirate strongly opposed the government's unilateral hike of petrol prices -- one of a host of austerity measures following a sharp drop in crude revenues.
Sheikh Sabah al-Ahmad Al-Sabah's decree made no direct mention of the tensions, instead referring to "delicate regional developments" and "the dangers of security challenges".
"It became necessary to go back to the people... to elect their representatives... and contribute to confronting those challenges," the decree said.
The move was based on a recommendation from the cabinet, which held an emergency meeting earlier Sunday to discuss the political situation.
It came less than 24 hours after parliament speaker Marzouk al-Ghanem called for snap elections, following three requests from lawmakers to grill ministers over the petrol price hike and alleged financial and administrative violations.
No date was set for fresh polls but under the Kuwaiti constitution early elections must be held within two months of the dissolution of the house.
Kuwaiti political analyst Saleh al-Saeedi said the dissolution came as a surprise given the current parliament's outspoken support for most government measures.
"This has been the most cooperative parliament with the government," Saeedi told AFP.
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MP Saleh Ashour even offered congratulations to the Kuwaiti people on the dissolution.
"I congratulate the Kuwaiti people for dissolving the national assembly and hope the next assembly will represent their aspirations," Ashour said.
The 50-member parliament was scheduled to start the final year of its four-year term on Tuesday.
Kuwait enjoyed relative stability in the past three years following almost seven years of political turmoil due to disputes between lawmakers, mainly from the opposition, and the government.
Almost all opposition groups boycotted the previous polls in protest against the government's unilateral change of the voting system.
But many of them have already said they will take part in the coming election.
This is the seventh time a Kuwaiti parliament has been dissolved either by the emir or by courts since 2006.
Kuwait was the first state in the Gulf to adopt parliamentary democracy in 1962. Parliament enjoys legislative and monitoring powers but the government is formed from outside elected MPs and is headed by a senior member of the Al-Sabah ruling family.
The OPEC-member -- which pumps about 3.0 million barrels of oil per day -- is known for its cradle-to-grave welfare system that has pampered its nationals, who make up 30 percent of its population of 4.7 million.
But it has undertaken a series of measures, including the decision to raise petrol prices by 40 to 80 percent, to deal with the fall in oil prices to historic lows.