The index recovered to be down 3.91 percent by 16:00 GMT.

The snap elections will decide whether the country receives more financial assistance from the ‘troika’ of creditors (European Commission, the European Central Bank and the IMF) and continue its policy of austerity. The policy of spending cuts and international borrowing has already boosted Greece’s external debt to 177.7 percent of GDP, while dropping austerity could mean exiting the eurozone.

The IMF said Monday it is suspending financial assistance to Greece until the new government is formed, AFP reports.

Former European Commissioner Stavros Dimas, the government’s preferred candidate, was supported by only 168 out of 300 lawmakers, and needed 180 votes for confirmation. Following Greek law a failure to elect a new president means an early general election, with voting scheduled for January 25.

"These elections will be a struggle between the fear of leaving the eurozone and anger provoked by austerity measures," George Pagulatos, Professor of European Politics and Economics of the University of Economics and Business in Athens told Bloomberg.

The benchmark 3-year yield rose by almost 1 percent, up to its highest since July at 11.175 percent. The yield on Greek 10-year government bonds jumped by one percentage point to 9.3 percent, reflecting growing concern that Greece may be heading for another debt crisis.

If Greece's anti-austerity left party SYRIZA is elected in January, there are fears the country may lose a chance to receive €240 billion in international assistance.

“The government will be emphasizing the risks associated with SYRIZA’s anti-bailout stance and SYRIZA will try to convince voters that it can offer a viable alternative, without endangering the country’s euro membership,” Pagulatos said.

"If we have to choose between the stability of the market which impose a financial dictatorship in Greece and democracy, I think that we should prefer democracy. But that’s not the problem right now in Greece. If there’s instability in Greece it’s not because we follow the democratic procedure, it’s because of the extreme austerity measures imposed that manage even to increase the debt, not only in the percentage of GDP, but in real numbers," Aris Chatzistefanou, maker of the film ‘Debtocracy’, told RT.

Political uncertainty surrounding Greece caused the euro to fall to a two-year low against the dollar on Monday, with the European currency trading at $ 1.2197. The Athens Stock Exchange share index has fallen by 27 percent from the beginning of 2014, according to Bloomberg.

READ MORE: Biggest Greek stock market drop since 1987 over surprise election

In December, eurozone finance ministers decided to extend financial aid to Greece until February to give Athens and the ‘troika’ of creditors extra time to settle differences on the economic program.

The Greek government has promised the people that 2014 will be the last year of austerity and the constant oversight by creditors.

The ‘troika’ has allocated almost €245 billion to Greece since 2010. The country’s economy has been able to return to growth, and GDP rose 0.7 percent quarter on quarter in July-September of 2014 which was the best among the eurozone countries. Annual growth could reach 0.6-0.8 percent by the end of the year.

However, the unemployment rate in Greece remains the highest in the eurozone at around 25 percent, because of the austerity measures.