Italian Prime Minister Mario Monti is stepping down, the president's office announced, just hours after the man he replaced, Silvio Berlusconi, said he would run again for head of government.
Monti "does not think it possible to continue his mandate and consequently made clear his intention to present his resignation", said a statement from President Giorgio Napolitano's office on Saturday.
The announcement came after Monti met with Napolitano at the presidential Quirinal palace for more than an hour. Already Friday, Monti had held talks with parliamentary political leaders including Angelino Alfano of Berlusconi's right-wing People of Freedom (PDL) party.
Monti would check to see if the various political parties were ready to approve the budget his government had advanced as soon as possible. But once that had been done he would step down, said the statement.
Comments Alfano has made in parliament amounted to a declaration of no confidence in Monti's government and its policies, the statement added.
"We believe the experience of the Monti government is over, Alfano told parliament earlier this week. But he added that as the PDL wanted an "orderly conclusion" to the legislature, it would not try to bring down the government
Monti's government had been due to step down in spring next year, with a general election expected in March or April.
But Berlusconi's PDL fired a shot across the government's bows on Thursday, twice abstaining from confidence votes in the government to protest Monti's policies.
Recent polls have suggested that the centre-left Democratic Party would win an election -- but not with an outright majority, forcing it to seek coalition partners.
The party is now led by Luigi Bersani, who was voted into the post only last weekend.
Berlusconi, a billionaire media magnate, said in his statement earlier Saturday that he had opened talks with former coalition allies the Northern League, a formerly separatist party, to try to agree on backing a single candidate.
He has also called a meeting of his PDL party for Sunday.
"I am running to win," he told journalists in Milanello, near Italy's economic and financial capital of Milan.
"When I did sport, when I worked and studied, I never entered into a competition to be well-placed but always to win," the 76-year-old said.
In October, Berlusconi had said that he would not run again for the premiership. On Wednesday evening however, the media tycoon said he had been assailed with requests to return to the field as soon as possible.
This will be his sixth bid to become head of government. He has been prime minister three times over a political career spanning two decades.
A parliamentary revolt forced him from office in November last year as he was fighting a series of scandals that had damaged his reputation and, said critics, the country's standing.
The financial markets had reacted so badly that Italy was teetering on the brink of bankruptcy.
-- Economy "worse than a year ago"--
Monti took over as prime minister at the head of an unelected government of technocrats. He set about introducing a policy of tax rises and unprecedented austerity measures to get the economy under control.
He warned that failure to approve a new budget by the end of the year could have grave consequences for Italy and for the European Union, the presidency statement said.
However, once that vote is obtained, his decision to stand down is "irrevocable," it added.
Berlusconi noted Saturday that his party had backed Monti for over a year, but added that it had "always claimed that an austerity policy causes damage to the economy.... All the statistics are worse than a year ago".
Monti said he was confident Italy's next government would not destroy his efforts to revive the debt-wracked eurozone country.
"I am convinced that whatever government succeeds me, the wisdom of the men and women in Italian politics will prevail," Monti said on the sidelines of an economic conference in Cannes, France, on Saturday.
"I am sure there will not be an attempt to destroy what we have been able to do to secure Italy's public finances," he said, adding that there was still an "enormous amount to do for growth" in the economy.
Napolitano had earlier sought to reassure the public, describing recent developments as "pre-election tensions".
But it has been enough to shake the markets. The yields between benchmark Italian and German 10-year sovereign bonds at one point on Friday widened to 330 points, from around 300 points on Monday.