Insiders say the election is set to turn into a three-way match between the 62-year-old incumbent, Lu Olo and Ruak.
The country has been largely peaceful since 2006, when rioting and factional fighting brought it to the brink of civil war, but there was violence around the 2007 parliamentary election and in February 2008, Ramos-Horta was targeted by assassins.
"Nobel Peace Laureate Jose Ramos-Horta announced today that he is standing for re-election in Timor-Leste's 17th March presidential elections," the president's website said, using the country's official name.
East Timor won formal independence in 2002, three years after a UN-backed referendum that saw an overwhelming vote to break away from Indonesia, whose 24-year occupation cost an estimated 200,000 lives.
The polls come as UN peacekeepers, stationed in East Timor since the 1999 vote for independence, prepare to withdraw.
In 2007, running as an independent but with the support of Prime Minister Xanana Gusmao and his National Congress for the Reconstruction of East Timor (CNRT) party, Ramos-Horta defeated Lu Olo in a second round ballot.
But insiders say that Ruak, a close friend and long-time ally of Gusmao, is capable of splitting the opposition Fretilin vote along with Lu Olo.
They say Ruak may also gain the backing of the CNRT if Gusmao switches support away from Ramos-Horta.
Ramos-Horta, who was jointly awarded the Nobel Peace Prize in 1996 for his role in fighting for the country's independence, last year repeatedly denied he would run for president again.
His website said the president's about-turn came after supporters at a rally in Dili on Monday presented a petition with 120,000 signatures urging him to seek a second term.
Last September Ramos-Horta said the election would not see a return to the chaos and violence of the past, insisting all sides were committed to fair elections and would accept the results peacefully.
The election is a two-round vote. If no candidate garners an outright majority a second round with the two top candidates will be held in April.
The tiny half-island nation with a population of 1.1 million is one of the world's newest and poorest countries.
Under Ramos-Horta it has made some headway in poverty eradication, and is banking on vast offshore oil and gas fields in the Timor Sea for economic rebuilding.
"Backed by strong petroleum exports, East Timor is now experiencing very strong growth. The Timorese people are taking important steps to manage their precious offshore oil revenues for the future," the World Bank said in a report last year.
The IMF calls East Timor the "most oil-dependent economy in the world", with petroleum income accounting for more than around 90 percent of total government revenue.
Indonesia annexed East Timor in 1975 after Portugal withdrew from its colony of more than 400 years.
The UN handed policing responsibilities back to local police last year, although there are still more than 1,000 UN police in East Timor and hundreds of Australian-led troops under a separate security mandate.
(H-RN)
