Police and military surrounded the parliamentary building in the capital Quito, allowing no one inside, according to a Reuters witness.
Opposition politicians say Lasso disregarded warnings of embezzlement related to a contract at state-owned oil transportation company Flopec, charges the president denies.
A majority of MPs backed a resolution accusing Lasso of allowing the corrupt contract to continue after taking office in 2021 although a congressional oversight committee, which heard testimony from opposition MPs, officials and Lasso's lawyer, said in its report it did not recommend impeachment.
Lasso says the impeachment process - the first against an Ecuador president in decades - is politically motivated and has sparked a grave crisis that has threatened democracy.
The dissolution was necessary, he said.
"This is a democratic decision, not only because it is constitutional, but because it returns the power to the Ecuadorean people... to decide their future in the next elections," Lasso said in a video broadcast.
Lasso's decision prompted an outcry from indigenous and progressive groups - some of who said they would take the matter to the streets in protest - while opposition politicians questioned the legality of the move.
Citing the crisis and inability to govern, Lasso invoked the constitution's so-called "two-way death" provision, which allows the president to call elections for both his post and the assembly under certain circumstances, including if actions by the legislature are blocking the functioning of government.
According to the constitution, he will now remain in office and rule by decree.
The electoral court must decide on a date for new elections within seven days of the assembly's dissolution.
Those voted into power in the early elections would serve until the regularly-scheduled 2025 elections take place.
Ecuador's military and police "have and will uphold their absolute respect for the constitution and law," Nelson Proano, commander of Ecuador's armed forces, said in a video statement, adding that Lasso's decision to dissolve the assembly was enshrined under the constitution.
Ninety-two votes out of 137 would have been needed to impeach Lasso.
A vote to move forward with the process last week received 88 votes out of 116 legislators present.
Lasso has repeatedly stressed the Flopec contract he is accused of turning a blind eye to was signed years before he took office and that his administration made changes to the contract on advice from Ecuador's comptroller to benefit the state.
Opposition lawmakers decried the dissolution decision as illegal although some belonging to the party of ex-President Rafael Correa - who was convicted of corruption and is living in exile - said elections were the only way out of the crisis.
"The country is crying out for change and we know that the time for that change has come," Marcela Holguin, an opposition politician from Correa's party, said outside the assembly.
In neighbouring Peru, conflicts between the opposition-led legislature and president also led to attempts to oust each other last year.
Then-president Pedro Castillo tried to dissolve Congress and head off his own impeachment in December but MPs quickly voted him out of power and law enforcement arrested him, which resulted in months of deadly protests.
with AP
