The emergency declaration on Saturday gives Paz broader constitutional tools to restore order, such as sending armed forces to clear blockades.
While the order goes into effect immediately, the president must notify Congress of the state of emergency within 24 hours of issuing the decree, which then has up to 72 hours to approve or reject the measure.
Protesting groups, many allied to former leftist president Evo Morales, have cut off key roads, stranding trucks and choking supplies of food, fuel and medicines to many areas, including La Paz.
The conflict initially erupted after Paz abruptly cut longstanding fuel subsidies to shrink the deficit amid a worsening dollar crunch and talks with the International Monetary Fund.
Despite later steps to stabilise fuel prices and reverse unpopular land reforms, protests intensified into broader discontent, with unions demanding wage increases, an end to fuel and dollar shortages, and Paz's resignation.
Paz's declaration came in a live message to the nation just hours after he unveiled a deal struck on Friday with the main union, the Bolivian Workers Confederation, that aimed to ease tension.
However, many roads connecting the South American nation's main production centre are under the control of rural associations aligned with Morales, who were not a part of the negotiations and are continuing to protest mainly in the area of Cochabamba.
Paz said the crisis had evolved into an organised attempt to destabilise democracy after weeks of violence and blockades.
He said the state of emergency aims to restore order, protect citizens and ensure the flow of essential goods, while warning that those continuing disruptions would face legal consequences.
"This is not a state of emergency to restrict people's lives ... It is a state of emergency to give freedom back to the people, to free Bolivia from those who use political conflict to block roads and harm the population," Paz said.
