Premier Romano Prodi quit on Thursday night after a Senate confidence vote produced a widely expected defeat for his 20-month-old centre-left government.
Prodi's administration, which has had a wafer-thin majority in the 315-seat upper house ever since it came to power, lost the crucial test by five votes.
As expected, key centrists in his eight-party coalition voted against the government, finally pulling the plug on an alliance which was deeply divided on a wide range of issues.
The announcement of the results of the vote - 161 against, 155 in favour - led rapidly to raucous celebrations on one side of the Senate, where some members broke open bottles of champagne.
Former premier Silvio Berlusconi, whose Forza Italia party is the biggest on the centre right, immediately called on President Giorgio Napolitano to dissolve parliament and set a date for elections.
Buoyed by polls indicating that the centre right would win handsomely, the 70-year-old businessman-turned politician promised to tell voters quickly what they could expect from a new centre-right government.
''We'll say what we intend to do in our first 100 days. We want a big majority in the House and the Senate,'' he said.
Rome Mayor Walter Veltroni, head of the Democratic Party, the senior partner in the centre-left coalition, said he was against sending Italians to the polls this spring.
''Elections would push the country into a dramatic crisis,'' said Veltroni, who is a likely candidate to lead the centre left in the event of elections.
Prodi, who left the Senate shortly before the result was announced, made no immediate statement.
Speaking in parliament earlier, the premier said the country could ill afford to face the uncertainty of a political crisis in the current economic climate.
The government called confidence votes in the House and Senate after the small Udeur party withdrew its support. That move followed the resignation of the party's leader, Clemente Mastella, as justice minister when he and his wife were placed under investigation for corruption.
Prodi won the vote in the House on Wednesday but never seemed likely to muster support in the Senate, where he was also abandoned by another centrist ally, former premier Lamberto Dini.
PRESIDENT TO HOLD CONSULTATIONS.
The premier, who was obliged to quit after losing a confidence vote, went immediately to the Quirinal Palace to hand in his resignation to President Napolitano.
Napolitano will now meet with parliamentary speakers, party whips and leaders and former heads of state, to hear their views before deciding how to proceed.
He has voiced reluctance to call elections before a new electoral law is in place, fearing that a vote would only produce a government as unstable as Prodi's.
The current electoral law, which uses proportional representation to allocate seats, is seen as a key factor in the chronic instability that has plagued the Prodi administration.
The law was pushed through parliament in 2005, at the end of the Berlusconi government's five years in power.
Forced to form an alliance ranging from Communists to Christian Democrats, and holding only a tiny majority in the Senate, the premier always struggled to hammer out policies and get laws through parliament.
Napolitano could try to get a new government installed, giving it the job of overhauling the current electoral law so that the country could then go to the polls under a new system.
Such an interim government, which could be led by an institutional figure, a politician, or even Prodi himself, would then have to go before parliament to show it had a majority.
It is far from certain a new administration would be able to muster a majority because several parties, including some of Prodi's allies, say they are ready to face elections under the current system.
According to a survey carried out for RAI state television, some 50% of Italians are against snap elections while 45% are in favour.
Of those against a return to the polls, 21% would choose an institutional government tasked with approving an electoral reform and 17% would prefer a new Prodi-led government given a set amount of time to do the same thing.
The possibility of a 'technical' government, led by an authoritative institutional figure and containing several non-political ministers, was favoured by 12%.
Prodi made two speeches to the Senate on Thursday, urging MPs to vote in favour of his government so it could continue economic reforms and cut taxes.
Listing what he saw as its key achievements to date, Prodi said it had ''rescued public finances and cut spending'' as well as restoring the primary surplus and starting a steady decline in the national debt.
