Sri Lanka President Mahinda Rajapaksa has called a presidential election for mid-January, government sources said on Monday, amid speculation the general who oversaw the end of 25 years of civil war is to challenge him.

The president can call elections for a second and final six-year term when he completes his fourth year in office, which for Rajapaksa was on Wednesday.

Government sources said the elections would be held in mid-January.

"The president has informed all the party leaders now, and he has signed the proclamation," said a cabinet minister, who declined to be identified.

Analysts say Rajapaksa wants to hold the presidential election before parliamentary elections to lock in a second term before his post-war popularity fades over issues like the cost of living and public wage hikes.

General Sarath Fonseka, the chief of defence staff widely credited for winning the war against the Liberation Tigers of Tamil Eelam, stepped down after weeks of rumours he and Rajapaksa had fallen out.

Fonseka said on Thursday he plans now to fight for democracy and human rights, fuelling speculation he will soon announce his candidacy.

Sri Lanka's stock market is one of this year's best performers, but has been on the decline since the government on October 13 announced it would hold presidential or parliamentary elections by April. It has fallen over 6.3 per cent since then. – Reuters