Greek MPs have rejected the presidential candidate nominated by Prime Minister Antonis Samaras, triggering a snap general election.
Stavros Dimas failed to reach the necessary 180 votes, which means that parliament will have to be dissolved.
Greece’s economy has begun to recover after six years of recession.
But Greeks have endured years of austerity and the left-wing Syriza party leading the polls wants the terms of a huge EU-IMF bailout renegotiated.
The Greek stock market fell almost 10% as MPs voted for a third and final time on Monday. Shortly afterwards, Mr Samaras announced that elections would take place on 25 January.
Mr Dimas, a former European commissioner, secured the votes of only 168 MPs, the same number he had won during the second vote last week.
The final vote is regarded as a major setback for the prime minister, as well as for eurozone countries that worked hard to bring Greece back from the brink in 2010.
Since then €240bn (£188bn; $290bn) has been spent helping Greece pay off its debts. In return for two major bailouts, the EU and IMF demanded stringent austerity measures.
German Finance Minister Wolfgang Schaeuble, in an interview on Saturday, praised Greece’s progress in tackling its debt crisis. But he warned: “Every new government needs to fulfil the contractual agreements of its predecessors.”
Although Syriza’s lead in the opinion polls has been narrowing in recent weeks, there is concern in the markets and among EU officials that a new Greek government could throw out many of the fiscal reforms implemented by Mr Samaras’s coalition with the left-of-centre Pasok party.