A general election will take place on Friday March 11, the Taoiseach informed the Dail this afternoon.
Amid chaos and controversy following the resignation of six Cabinet ministers, Mr Cowen made an apparent climbdown from a reshuffle, instead choosing to reassign portfolios.
In statement to the Dail the Taoiseach said the coalition Government would continue in power until the Finance Bill, giving effect to Budget 2011, and other important legislation is passed.
Mr Cowen said: "I believe it is important in the weeks ahead that the Government gives legislative effect to the Budget through the enactment of the Finance Bill and other related Bills which benefit the people.
"There`s nothing more important than doing precisely that."
The Government was thrown into turmoil in the last 24 hours after five resignations - Mary Harney from health, Dermot Ahern from justice, Noel Dempsey from transport, Tony Killeen from defence, and Batt O'Keeffe from enterprise.
Their departures came on the back of the resignation of Micheal Martin from foreign affairs on Tuesday night after a failed leadership challenge.
Mr Cowen was widely believed to be plotting a reshuffle to fill the empty Cabinet seats after Mr Dempsey claimed the announcement of resignations was in the planning for weeks.
But in an apparent U-turn under pressure from junior coalition Government partners the Green Party, the portfolios were being reassigned.
Tanaiste (deputy PM) Mary Coughlan, already in charge of education, will take on health, Agriculture Minister Brendan Smith takes on justice, Social Protection Minister Eamon O Cuiv has been given the defence brief, and Pat Carey, Minister for Gaeltacht, Community and Rural Affairs, has control of transport.
Tourism Minister Mary Hanafin, who voted against Mr Cowen remaining leader of the ruling Fianna Fail party in this week's leadership heave, has been asked to take the Enterprise portfolio.
Mr Cowen retains control of the foreign affairs brief.
He dismissed the opposition's claims that he had attempted a stunt to fill the departmental positions with hand-picked general election candidates.
"I challenge the politically correct view that it was for the purpose of a stunt. Far from it," the Taoiseach said.
"I give you my view because what this election is about is the future of the country. What this election is about is that we have the people of talent and ability to put that case."
No Green TD attended the Dail chamber for the statement.
Fine Gael leader Enda Kenny depicted the Taoiseach and Green Party leader John Gormley as Laurel and Hardy.
"It's another fine mess we have gotten ourselves into," Mr Kenny said.
"The position that no new minister has been appointed obviously is a case of desperation by the Government of being afraid of putting that to a vote in the house.
"And the fact the Greens are not represented in the chamber on this date speaks for itself."
Mr Kenny said the Government was also unable to fill its own frontbench during the announcement despite more than 20 ministers and former ministers on the backbenches.
"It's almost one for everyone in the audience," he said.
Eamon Gilmore, the Labour leader, accused Mr Cowen of a cynical attempt to cling on to power through a major Cabinet reshuffle and appointment of new ministers.
"The Taoiseach attempted a stroke and it backfired," he said.
Mr Gilmore suggested the whistle had been blown on Mr Cowen's plans by the junior coalition partners.
"As a result he has now ended up as a Taoiseach without authority," he said.
"No longer, it would appear, has he the authority as head of Government to do the most essential things that a head of Government does in a democracy - which is to appoint the members of his Government."
The Labour leader said the Taoiseach's failure to make an announcement earlier, after last night's mass Cabinet exodus, sparked political chaos and sent out a signal internationally that the country was disintegrating.
Mr Gilmore said "hope and confidence" needed to be restored for Irish people who had come through "hell and fire" in recent years.
Sinn Fein Dail leader Caoimhghin O Caolain said it was beyond doubt that Mr Cowen was forced into backing down on plans to appoint new Fianna Fail ministers during the day.
"A lame duck Taoiseach, with a lame duck Government," he said.
Mr O Caolain also pointed to the absence of any Green Party TDs in the chamber, saying "it speaks volumes".
"That speaks louder than anything else here in this moment in time. They quite clearly were not up for it, they felt this was the straw that would break the camel's back," he said.
Mr O Caolain said the founding fathers of the Dail - to be commemorated tomorrow - would feel ashamed at what had unfolded during the day.
Mr Cowen suggested he had intended to appoint new Cabinet ministers, without any pay rises or extra pension benefits, but had to change his plans.
Mr Gormley discussed the resignations and vacancies with the Taoiseach this morning before talking to his party colleagues.
"I had uniquely, in respect of new ministers that I would appoint, suggested and intended that they would derive no personal financial benefit from their promotions and there would be no extra additional financial burden placed on the state as a result of such appointments," he said.
"But it has not been the situation."