“It is extremely regrettable,” he said.
He said he still had the energy to continue as leader of his VVD party but would take time to consider whether to do so.
Two parties declined to back Rutte’s proposal to limit the number of asylum seekers after three days of talks. He has been under pressure after numbers rose over the past year.
Reception centres have been overwhelmed and a baby died in a sports hall used as a shelter in August.
The VVD wanted to reduce the number of asylum seekers who could bring their families to the Netherlands. Only those in personal danger, for example because of their political views or sexual orientation, would be allowed to do so. Those fleeing famine or war would not.
D66, a more progressive liberal party, and the Christian Union, a centrist party, refused to agree.
Rutte has also attempted to limit migration by lobbying Brussels for action. He recently travelled to Tunisia with Giorgia Meloni, the rightwing leader of Italy, and European Commission president Ursula von der Leyen, to offer more than €1bn in investment if it reduced the flow of migrants across the Mediterranean.
By law elections have to wait at least three months, and summer and autumn holidays are likely to push them into November.
Pieter Heerma, leader of the Christian Democrats, said the government collapse was “very bad for the Netherlands”. He condemned Rutte as irresponsible and reckless.
The VVD remains the largest party in the Netherlands’ fractious political firmament, which has 20 parties including independent MPs in the lower house of parliament.
Sarah de Lange, professor of politics at the University of Amsterdam, said elections would produce a “very different parliament.
“Elections might be advantageous for the VVD given that coalition partners D66 and the Christian Democrats are very low in the polls and the new BBB party will have to scramble to get everything ready in time.”
The BBB, or Farmer Citizen Movement, is only four years old but won provincial elections in March with 19 per cent of the vote. It rose to prominence by backing farmers’ protests against the government’s plans to reduce farm output to cut nitrate pollution.
BBB leader Caroline van der Plas, its only MP, said it was ready for an election.
“All the banners are still in the barns. They can be put back in the fields tomorrow. We just roll on from one campaign to the next. We just continue with what we were doing,” she told broadcaster NOS.