In a statement to MSPs, she said: "A choice between Brexit and a future for Scotland as an independent European nation should be offered in the lifetime of this Parliament.
She said Westminster has failed to protect Scotland's interests and so the Scottish Government is taking steps to rectify that.
The First Minister said: "Throughout this, the Scottish Government have worked tirelessly to help find the best way forward for all of the UK.
"Whatever Scotland's constitutional status in the future, it will always be in our interests for these islands to have the closest possible relationship with the EU.
"We have done everything possible to help avert the Brexit crisis for the whole UK. And we will continue to do so."
She added: "The Westminster system of government does not serve Scotland's interests.
"And the devolution settlement, in its current form, is now seen to be utterly inadequate to the task of protecting those interests."
Wednesday's statement was the "first available opportunity" for the First Minister to update MSPs since the EU granted a six-month extension to the Article 50 Brexit process.
A Number 10 spokesman said on Tuesday that Theresa May's stance on the issue of a second Scottish referendum "has not changed" - with the PM having previously made clear her opposition to such a ballot.
Scottish Conservative interim leader Jackson Carlaw said: "Whatever the First Minister says about being 'inclusive', her statement is inherently divisive.
"Astonishingly, the way Nicola Sturgeon thinks we can come together is for Scotland to be plunged into another divisive referendum within the next 18 months.
"That is frankly absurd.
"The SNP's plan is clearly to divide families, workplaces and communities all over again, and for the foreseeable future. That is not what the majority of Scotland wants.
"People have had enough of constitutional politics and division. Yet, with the SNP, more of this is now inevitable."
More to follow...