It is the first time in Israel's history that a general election has failed to produce a government.
Israeli lawmakers voted to dissolve Parliament after Netanyahu missed the deadline on Wednesday night. Now, the country will hold an election once again, just seven weeks after the previous one, Haaretz reported.
Israelis will return to the polls on September 17, two weeks before Netanyahu's pre-indictment hearing on a series of corruption charges against him on October 2 and 3.
Netanyahu entered negotiations to form a coalition government after his Likud Party won 35 of the Knesset's 120 seats in the April 9 election, setting him up for a fifth term in office.
But he clashed with former Defence Minister Avigdor Lieberman, whose support in the talks became vital.
Lieberman, from the nationalist Yisrael Beitenu party, had made it a condition of allying with ultra-Orthodox Jewish parties that they change their military draft exemptions for ultra-Orthodox Jewish seminary students.
Netanyahu was unable to broker a compromise between the parties.
Speaking to reporters after the Parliament vote, Netanyahu said: "We'll run a sharp, clear election campaign which will bring us victory. We'll win, we'll win and the public will win."
He slammed Lieberman and said he never intended to reach an agreement.
Netanyahu accused Lieberman of repeatedly making fresh demands during coalition negotiations and said Israel was being "dragged" back to the ballot box because of "the private ambitions of one person".
Netanyahu will remain in power until September's vote.
He faces another challenge in the coming months in the form of possible fraud and bribery charges, and has been accused of attempting to secure immunity from prosecution for himself.
Netanyahu is alleged to have accepted gifts from wealthy businessmen and dispensed favours to try to get more positive press coverage. If he is indicted, the Supreme Court will determine whether he must resign.
( With inputs from IANS )