The cabinet on Friday gave the green light to a so-called 'fiscal federalism' bill - a system whereby regions collect and spend their own tax revenue rather than sending it to central government.
The bill, drawn up by Simplification Minister Roberto Calderoli and Regional Affairs Minister Raffaele Fitto, also gives greater autonomy to city councils and provincial governments to manage revenue and spending.
Fitto said that the bill, which was agreed with regional, provincial and city governments, is still ''necessarily generic'' at this stage but that the cabinet approval was nevertheless ''a historic moment''.
Calderoli said that the government's task was now ''to add the numbers'' to the bill.
Calderoli has hit out at critics who say fiscal federalism will benefit the highly productive north at the expense of the underdeveloped south, stressing that the bill also foresees an equalization fund to help regions with lower income.
But opposition politicians reacted with suspicion to the bill, which they claimed was too vague.
''They're telling us that with fiscal federalism the north, the centre and the south of Italy will benefit - something's not right here,'' said Democratic Party MP Giuseppe Berretta.
''Our priority is that federalism is connected with renewed attention for the south and a guaranteed respect for service standards for all citizens, whether they be from Veneto or Sicily,'' he added.
The president of the southern region of Calabria, Agazio Loiero, also urged caution.
''I would avoid blowing the trumpets (prematurely). We are just at the beginning and we only have an outline of the idea,'' he said.
''There's still a lot to clarify and a lot of work to avoid perpetuating Italy's north-south divide,'' he added.
The devolutionist Northern League party, which forms part of Premier Silvio Berlusconi's People of Freedom party, has fought a long battle for fiscal federalism.
Parliament is now set to examine the bill as part of the state budget, which will be voted on by the end of the year, although Calderoli said it would take ''up to 24 months'' before fiscal federalism could be put into motion.
