The decision, made under pressure from the main opposition Liberal Democrat Party (LDP), is likely to prove unpopular with some members of Noda's own party, the Democratic Party, which has been in power for a little over three years.
And it may cost him his job.
In office since September 2011, Noda is a the latest in a string of politically fragile Japanese leaders. He is the sixth prime minister in the six years since the departure of Junichiro Koizumi, who was in power for more than five years.
Approval ratings for Noda and his cabinet have sagged deeply in the polls, as Japan has failed to haul itself out of the economic morass in which it has stagnated for the past two decades. Many members of his party fear losing their seats in an election.
But with the Japanese government heading toward a financial crunch, Noda agreed earlier this week to dissolve the lower house of parliament if the LDP gave its support to key legislation, including a vital bill that enables the government to keep financing itself. That bill was passed Friday by the upper house, where the opposition holds sway.