Greece's prime minister has set a date of July 5 for a referendum on the country's bailout deal with international creditors.
Alexis Tsipras made the announcement in a televised address to the Greek people early Saturday following an emergency cabinet meeting.
Without an agreement on its international bailout, Greece faces the threat of running out of cash, defaulting on its loans and, possibly, leaving the euro currency.
Greece's development minister Panayiotis Lafazanis urged voters to answer "with a resounding no" in the vote.
Athens' stunning move happened after it turned down an offer of a five-month, 12-billion-euro ($13.4-billion) extension of its bailout programme by international creditors.
The creditors -- comprising the European Commission, the European Central Bank and the International Monetary Fund -- said Greece must seal a deal this weekend to avoid an IMF default early next week.
However the Greek government argued the reforms demanded alongside the bailout extension would be recessionary and the funding insufficient.
The proposal "would require introducing deeply recessionary reforms as a condition for the funding, which is totally inadequate over the five months period," a statement said, adding the government "cannot accept" the institutions' proposals.
German Chancellor Angela Merkel had earlier urged Athens not to waste an "extraordinarily generous" offer that would see Greece handed vital cash until November 30 in exchange for major reforms Greece has so far resisted.
But even before his government rejected the offer, Greek Prime Minister Alexis Tsipras said he would refuse any take-it-or-leave-it offers from his EU partners -- and vowed to remain true to his anti-austerity values despite the looming financial abyss.
"Europe's principles are not based on blackmail and ultimatums," Tsipras said after a two-day EU leaders summit dominated by the Greek debt crisis. "In these crucial hours, nobody has the right to put these principles at risk."
Tsipras spoke after a short meeting with Merkel and French President Francois Hollande on the eve of a Eurogroup gathering of eurozone finance ministers in Brussels on Saturday.
EU sources said the ministers meeting in Brussels would also discuss a "plan B" if Greece has rejected the creditors' offer.
The eleventh-hour offer followed a week-long series of talks to end the stand-off between the creditors and Tsipras's leftist government, which has balked at further reforms-for-cash after five years of harsh austerity measures and six years of recession.
Tsipras's Syriza party was elected in January on an anti-austerity platform and he has resisted the creditors' demands for pensions cuts and VAT hikes in return for unlocking bailout funds.