Italian Prime Minister Silvio Berlusconi attends a session at the Senate in Rome in this December 14, 2010 (File photo/ Reuters)
Italian President Giorgio Napolitano will hold talks with political parties from 0800 GMT before giving his mandate for the formation of a new cabinet that will have to move quickly to push through painful economic reforms.
The talks are expected to last until about 1700 GMT with investors pushing for a new government to be in place by Monday, in time for the opening of the markets, where Italy has been hit this week by a wave of panic.
The 86-year-old Napolitano, a former Italian Communist Party leader, holds a largely ceremonial role but has been a crucial behind-the-scenes negotiator in the current crisis, trying to avoid the creation of a political vacuum.
International leaders have warned Italy against holding early elections after Berlusconi's resignation, saying a prolonged political crisis in the eurozone's third largest economy could drag down the entire euro area.
Markets have already given their blessing to the nomination of 68-year-old former European Union commissioner Monti as prime minister, with borrowing costs easing from record highs and the stock market rallying as speculation intensified that he would be chosen.
Berlusconi announced on Tuesday that he would resign after a parliamentary revolt left his centre-right coalition without a majority, and a gradual loss of political support in recent months amid a wave of sex scandals and legal troubles.
But he set the precondition that the Italian parliament first had to approve a package of economic reforms that he has promised to the European Union.
Lawmakers did so on Saturday, and there were scenes of jubilation on the streets of Rome after Berlusconi brought the curtain down on his long rule.
The 75-year-old billionaire tycoon, a larger-than-life figure who has been in power for 10 of the past 17 years, has vowed he will not run for public office again -- leaving analysts wondering about what his future holds.
Many believe he will attempt a comeback with a slimmer political following but others say he could return to business by helping out his troubled media empire or even re-take control of his beloved AC Milan football club.
His latest popularity rating of 22 percent, and jubilant scenes in Rome after his resignation will provide little encouragement for a comeback for the man blamed by many for Italy's currently perilous economic state.
"I am deeply embittered," Berlusconi told reporters after waving to a crowd of thousands shouting "Buffoon!" and "Go Home!" outside his official residence just before his resignation.
"Ciao! And above all don't come back!" shouted one man.
"We're all delighted. We've had enough of this person who always acted in his own interests. Italy is headed for a better future," said 50-year-old Tommaso Romito, muffled up in a white scarf on a cold night in Rome.
Dario Franceschini of the main opposition Democratic Party said: "Today the curtain falls on a long and painful phase of Italian political history.
"The country wants to turn the page and start again," he added.
Massimo Donadi, a lawmaker from the opposition Italy of Values party said: "We hope today marks the beginning of a new spring in Italy."
Motorbikes streamed past with Italian flags and a choir sang: "Hallelujah!"