The defiant stand will further inflate tensions in the country of 64 million people where anti-government protesters have vowed to block people casting their ballots.
The government announced the decision after Prime Minister Yingluck Shinawatra met Election Commission officials who argued the election should be delayed up to four months because of the likelihood of violence.
Deputy Prime Minister Pongthep Thepkanchana told reporters that delaying the election would only worsen the crisis that has left 10 people dead, hundreds injured and crippled the government.
''The people who are causing trouble didn't say they would stop if it is postponed,'' Mr Pongthep said.
''The longer it is postponed, the more damage it will cause the people and the country,'' he said.
Mr Pongthep said the Election Commission will try and organise polling to avoid violence.
But earlier Somchai Srisuttiyakorn, one of the election commissioners, said ''we believe chaos will ensue.''
Grenade attacks, drive-by shootings and violent clashes have increased over the past week.
Advance polling last Sunday was disrupted in Bangkok and most southern provinces by roaming mobs of protesters who sometimes used intimidation and violence to stop almost 500,000 people casting ballots.
Protest leader Suthep Thaugsuban has threatened to ''close every route'' to polling stations, raising fears of violent clashes with voters on Sunday.
His protesters appear likely to be able to disrupt polling across most of Bangkok where tens of thousands of people have rallied demanding the resignation of Ms Yingluck and her cabinet.
They are also demanding that Ms Yingluck's elder brother Thaksin Shinawatra quit politics.
Critics accuse Mr Thaksin, a divisive figure in Thailand, of running the country from Dubai where he lives to avoid a jail sentence for corruption.
There is also likely to be widespread disruption of polling in southern provinces that are strongholds of the main opposition Democrat party that is boycotting the election.
But voters are expected to turn-out en-masse in north and north-eastern provinces where support for the government is strong.
Parties led or controlled by Mr Thaksin have won the last five elections, mainly with the support of mostly poor rural masses who have benefited from his populist policies.
Without participation of the Democrats, Ms Yingluck's Pheu Thai party appears certain to be re-elected despite allegations of corruption in the government that was elected in a landslide victory in 2011.
Ms Yingluck faces possible impeachment over a costly subsidy scheme for rice farmers. She denies any wrongdoing.
Opposition parties have already signalled they will challenge the legitimacy of the election result, further prolonging the crisis that is dragging down Thailand's economy and caused a sharp fall in tourist arrivals at the peak of the tourist season.
The new parliament will also not be able to sit immediately after the election results are confirmed because an insufficient number of candidates were registered because some were blocked by protesters.
This means by-elections will have to be held before parliament can open.
Protesters have stepped-up their vitriolic attacks on Ms Yingluck, Thailand's first woman prime minister, who has urged talks to try to end the unrest.
But Mr Suthep, a former prime minister in a military-backed government has refused to participate, saying his movement will only accept the removal of her government.
In one of the latest incidents, shots were fired at an army base where Ms Yingluck was meeting election commissioners.
The government has announced its intention to arrest Mr Suthep and other protest leaders on treason charges but police have failed to move against them, fearing it could provoke violence and prompt a military coup.
So far during more than two months of protests police have only intervened to prevent violent clashes while protesters have shut down parts of Bangkok and occupied ministries.
Pheu Thai party leaders believe powerful anti-government forces are engaged in what amounts to a people's coup against the democratically-elected government, with attacks coming from both the streets and institutions.
The military claims it wants to remain neutral and will only intervene to prevent widespread bloodshed.
The crisis is the latest episode in an eight-year conflict involving competing groups of elites, one group supported by Bangkok's middle class and royalists and the other group supported by people in rural areas who support Mr Thaksin.