However the eight-party coalition, including hard-right, liberal and Arab parties with deep differences on questions from religion to the Palestinian issue, had faced growing strains as its slight majority was cut by defections.
“I think the government did very good work over the past year. It’s a shame the country has to be dragged into elections,” said Defence Minister Benny Gantz, head of a centrist party in the coalition.
“But we will continue to function as a temporary government as much as possible,” he said.
A date for the snap parliamentary election was not announced, but Israeli media reported it was likely to take place in October.
Lapid said he would not wait until new elections to address the problems facing Israel.
“We need to tackle the cost of living, wage the campaign against Iran, Hamas and Hezbollah, and stand against the forces threatening to turn Israel into a non-democratic country,” he said.
Bennett, a former commando and tech millionaire who entered national politics in 2013, defended his government’s record, saying it had boosted economic growth, cut unemployment and eliminated the deficit for the first time in 14 years.
But as pressure on the government increased in recent days, he was unable to hold the coalition together and decided to step aside before Netanyahu’s right-wing Likud party could table a motion of its own to dissolve parliament.
Netanyahu, who has vowed a comeback despite facing trial for corruption, said Likud would lead the next government and he poured scorn on Bennett, a right-wing politician who was once one of his closest aides.
“This evening people are smiling,” said Netanyahu, speaking to reporters at parliament. “They understand something great happened here. We are getting rid of the worst government in the country’s history.”
In Gaza, the Palestinian Islamist group Hamas, which does not recognise Israel’s right to exist, said it would not alter its course with any new government.
“We must resist to regain the full rights of our people,” said spokesperson Fawzi Barhoum.