He had been accused of turning a blind eye to alleged embezzlement and was facing an imminent vote that could have ousted him from office.
Mr Lasso, a conservative, said the charges were politically motivated.
He will now have up to six months to govern by decree - without the input from lawmakers - before fresh general elections are held.
The constitutional clause Mr Lasso invoked in order to disband the National Assembly and order early elections to be held is known as "muerte cruzada" (mutual death).
It was introduced in 2008 and has never been used in Ecuador before. It is seen as an extreme measure and is expected to trigger protests from opposition groups.
Mr Lasso argued it was necessary "due to a grave political crisis and internal commotion".
Source: www.bbc.com
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