The announcement came after the prime minister called on Governor General Quentin Bryce.
"The time has come for the Australian people to decide on our nation's future. They are the ones who we in this parliament are elected to serve," he said at a press conference.
"There has been a number of difficult considerations (while) deciding upon a date for this election. The first is we had to complete unfinished policy business and make some changes," he added.
The Australian Labor Party leader said the economy needed to be steered through the transition from the mining investment boom to broader growth across the non-mining sector.
"If as a nation we fail to manage this transition well, it will hurt the jobs and living standards of all Australians," he said.