Noda's decision for an early general election could mean his struggling Democratic Party of Japan may lose power it has held since 2009, with the return of the Liberal Democratic Party to leadership, Kyodo News reported.
The opposition has been pressing Noda to keep a promise, made in August, to go to the people "sometime soon" for their support in passing a key bill to double the 5 percent sales tax by 2015, the report said.
The announcement came on the same day the Noda government reduced its forecast for the economy for the fourth straight month, citing the global economic slowdown, which has adversely affected exports.
Earlier this week, the government reported the economy shrank at an annualized 3.5 percent in the July-September quarter, which represented a 0.9 percent contraction in the gross domestic product from the previous quarter. Another contraction in the next quarter could push the economy into a recession.
Japan's economy, the third largest in the world after the United States and China, was hit hard by a devastating earthquake and tsunami in March of last year.
Making matters more difficult for the Noda government, Japanese exports have been affected by a rising yen and by an East China Sea island territorial dispute with China. China is a major trading partner of Japan and the territorial dispute has begun to affect bilateral trade estimated at about $350 billion annually.
Kyodo said ratings for Noda's Party have plunged to roughly half of the opposition LDP's in recent opinion polls.
Noda is Japan's sixth prime minister in six years.
Kyodo said Noda, in his re-election campaign, is expected to promote Japan's participation in the U.S.-led Trans-Pacific Partnership free trade talks, which he believes would lead to economic recovery.
LDP leader Shinzo Abe, who would become prime minister if his party wins, said: "Both the LDP and the public have waited for this day for three years."
'Happy' fan videos make Pharrell cry [VIDEO]
Pregnant Mila Kunis wins 'Best Villain' at MTV Movie Awards