Italian Prime Minister Enrico Letta will call a confidence vote in parliament after a showdown with center-right partners in his fragile coalition scuppered a vital package of budget measures on Friday and took his government to the brink of collapse.
Letta flew back from a visit to New York with coalition unity already in tatters after a threat by centre-right lawmakers to walk out over former premier Silvio Berlusconi's battle against a conviction for tax fraud.
"Efficient government action is obviously incompatible with the mass resignation of a parliamentary group which should support the government," Letta said in a statement after a cabinet meeting on Friday.
"Either there is a new start and the interests of the country and its citizens are put first or this experience is at an end," he said.
Regional Affairs Minister Graziano Delrio said Letta, who met President Giorgio Napolitano on Friday, would go before parliament in the next few days to seek backing to continue.
After two days of mounting tension and with financial markets on edge, Letta met ministers in a last-ditch bid to secure approval for additional budget measures needed to bring Italy's deficit within European Union limits.
The meeting was also intended to satisfy a key demand of the centre-right and avert the sales tax from rising to 22 percent, from 21 percent. The tax increase was passed by the previous government of Mario Monti and rates are due to rise on Tuesday.
However with the meeting still in progress, officials made clear that no deal could be reached.
Failure to agree on some 3 billion euros ($4.06 billion) of budget measures, demanded by both Letta's centre-left Democratic Party (PD) and Berlusconi's People of Freedom (PDL), underlined the breakdown between the two traditional rivals that were forced together by last February's deadlocked election.
Economy Minister Fabrizio Saccomanni, who has staked his credibility on meeting the EU budget limits and faced constant sniping from the PDL over recent months, was furious at the breakdown, officials said.
PDL lawmakers said proposals to avert the rise in sales tax would have been funded by an increase in fuel duties that would have punished consumers and simply replaced one tax by another.
(Read more: Is the net closing in on 'Houdini' Berlusconi?)
"We can't accept the blame for this," PDL secretary Angelino Alfano, who is also deputy prime minister, told the cabinet, according to one official. "We can't stay in the government if taxes are going up and there are no cuts to spending," he said.