The nine parties in Premier Romano Prodi's centre-left coalition held a summit on Wednesday after the government lost an important parliamentary vote on its foreign policy.
Prodi's alliance failed to make the majority by two votes in the Senate, with 158 voting in favour of its foreign policy line, 136 against and 24 abstentions.
The ballot was not a confidence vote and there is no constitutional requirement for Prodi to resign.
But Foreign Minister Massimo D'Alema had said beforehand that the eight-month-old government should quit if it lost the vote as a "constitutional principle".
After conferring with his allies, Prodi will hold talks with President Giorgio Napolitano, who cut short an official visit to Bologna to return to Rome.
The Silvio Berlusconi-led opposition called on the premier to step down immediately, greeting the vote result with a chorus of "quit, quit, quit".
Berlusconi issued a statement saying that "Prodi must resign immediately for reasons of political, constitutional and ethical consistency".
"The government has been clamorously defeated in parliament... Prodi and D'Alema asked parliament for its support for their foreign policy ideas and decisions and failed to obtain it," the former premier said.
Ex-foreign minister and key Berlusconi ally Gianfranco Fini said that "D'Alema has been quoted by all the papers as saying that the government would resign if it lost the vote. A man of honour keeps his word".
Prodi has upset pacifist and hard-leftist allies by refusing to withdraw Italian troops from a peacekeeping mission in Afghanistan, and approving the expansion of a US military base in the northern city of Vicenza.
The premier has a solid majority in the House but holds only one more seat than the opposition in the Senate, where he was expecting extra help from a handful of life senators.
But of the seven life senators, former president Francesco Cossiga voted against the government, two abstained including seven-time former premier Giulio Andreotti and another was absent for health reasons.
The premier was also dealt a blow when Senator Franco Turigliatto of the Communist Refoundation Party (PRC), resigned in protest at the government's foreign policy just before the vote. Another leftist senator, Ferdinando Rossi, joined Turigliatto in abstaining.
Given that abstentions in the Senate essentially count as negative votes, the actions of Rossi, Turigliatto and the two life senators were decisive.
Angry left-wing senators threw a sheaf of press reports at Rossi, saying his actions were "unforgivable".
The row spilled over into the House, where the session had to be suspended due to squabbling between opposition and centre-left lawmakers.
D'Alema had urged potential rebels to support the government's foreign policy in a long, pre-vote speech.
"It is time to take responsibility... I say it loud and clear: we cannot tackle the difficult international challenges ahead without the certainty of broad consensus, and we are here to ask for that consensus," said D'Alema, who is also deputy premier.
D'Alema defended Italy's continued presence in Afghanistan, where pacifist allies say the situation has become too dangerous for a peacekeeping mission.
"The withdrawal of Italian troops would be a unilateral act which would distance Italy from the European Union and leave us isolated," the former premier said.
"The Afghan mission is not a NATO one but a United Nations one. It is above all a political and civil mission, of the entire international community... Only by remaining are we working towards peace," he said.
Responding to allies who accuse the government of continuing the policies of the previous, Berlusconi-led government, D'Alema said they were "seriously mistaken".
He cited the government's withdrawal of troops from Iraq, the centre left's opposition to the war there and its determination to make Europe Italy's priority.
On the Vicenza base issue, D'Alema said that revoking the government's green light to its expansion would constitute an "act of hostility".
More than 70,000 people took part in a demonstration in Vicenza last Saturday against the base's expansion, a project which involves doubling its size to accommodate some 5,000 American troops.
D'Alema said the government had asked Washington to take into account the concerns of the local community, indicating that building plans could be modified to minimise the impact on the UNESCO World Heritage-listed city.
The subsequent vote was on a motion presented by the governing coalition expressing support for D'Alema's speech and approval of its policy lines.
The government has been forced in the past to resort to confidence votes to maintain coalition unity in the Senate on foreign policy issues.
It will face another risky vote before the month is out when the Senate will be called to approve refinancing for Italy's mission in Afghanistan.
Reactions to Wednesday's vote were varied, with some political observers speculating that D'Alema would resign.
But Minister for Relations with Parliament Vannino Chiti said that "D'Alema has not taken an isolated course. A government which does not have a compact and self-sufficient majority must go, not just its foreign minister".
"The problem is to see whether this government has a strong and united majority. These past few days, it has shown that it hasn't," the minister added.
Justice Minister Clemente Mastella, who heads the centrist, Catholic UDEUR party, said the government needed to verify whether it had a "numerical majority" in the Senate or not, if necessary by holding a confidence vote.
"It's obvious that D'Alema was expressing the government's policy line. Therefore either we all go home or we all remain," Mastella said.
PRC chief Franco Giordano, whose party has been one of the most troublesome for Prodi on foreign policy issues, said that "it's up to Napolitano to decide but as far as we're concerned, the Prodi government must continue because there's no alternative".
"Prodi has the unconditional confidence and support of the PRC," Giordano said.
