It came after two rival political alliances both staked claim to form a government in the heavily militarised northern state, according to PTI.
Governor Satya Pal Malik announced the assembly had been dissolved with immediate effect because parties with "opposing political ideologies" could not form a stable government, the news agency said.
OIC secretary general condemns human rights violations in Occupied Kashmir
Malik also reportedly said that "extensive horse-trading and possible exchange of money" had taken place.
Kashmir has been divided between India and Pakistan since the end of British colonial rule in 1947.
Freedom fighter groups have been fighting Indian government forces in Kashmir for decades, demanding an independent state or merger with Pakistan in violence that has left tens of thousands dead, mainly civilians.
In June, India's ruling Bharatiya Janata Party (BJP) pulled out of the governing coalition in Jammu and Kashmir because of what it called worsening "terrorism and violence".
The Hindu nationalist party had ruled in the restive state since March 2015.
After the BJP's withdrawal, the state's governor - a figurehead appointed by New Delhi - was given the responsibility of ruling Jammu and Kashmir until fresh elections were held or a new coalition was cobbled together.
Following the assembly's dissolution on Wednesday, the BJP said on Twitter that the "best option in such a scenario is to go in for a fresh election at the earliest".
Indian troops martyr senior Tehreek-e-Hurriyat leader in IoK
India has about 500,000 soldiers in Muslim-majority occupied Kashmir.
Earlier this month gunmen killed a local BJP leader and his brother in a remote district of the region.
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