“We would do well to lead a very personalised contest which is focused on the two leading figures,” he told the Die Zeit newspaper.
He made the announcement two days after surprising the nation with a call for early elections.
His opponent is expected to be Angela Merkel, the Christian Democratic Union (CDU) leader who hopes to be Germany’s first woman chancellor.
Chancellor Schroeder faces a tough task in trying to win a third term in office.
On Sunday his Social Democrats Party (SDP) party suffered a humiliating regional election defeat in North Rhine-Westphalia (NRW), Germany’s most populous state and an SPD stronghold for the past 39 years.
Some analysts believe his best chance at beating Ms Merkel, who is generally seen as less charismatic, may be to turn the election into a personality contest.
Such a choice would mark a radical departure in German politics. Traditionally elections have been battles between parties, not between chancellor and challenger.
The latest opinion poll gives Chancellor Schroeder a wafer thin one point lead.
The government’s popularity has plunged as unemployment has surged to a post-war high and its pro-market reforms have failed to stir the economy.
SPD Chairman Franz Muentefering on Tuesday said a vote of confidence would be held on July 1, the first legal step toward dissolving parliament with the goal of holding a September 18 poll.
In his newspaper interview, Chancellor Schroeder distanced himself from his Green coalition allies. The SDP has shared power with the Greens in Berlin since 1998.
In an election “everyone tries to win the most votes possible against every other opponent,” he told Die Zeit. While he said he wasn’t calling an end to the “Red-Green” coalition, cooperation between the parties looks doomed.
After their weekend defeat in NRW, not a single region in Germany is still ruled by an SPD-Greens partnership.
Schroeder’s closeness to Russia and China has upset many Greens, while the SPD has railed against its ally over a visa scandal centered around Greens Foreign Minister Joschka Fischer.