Italy's presidential palace has confirmed that Prime Minister Silvio Berlusconi has resigned, setting in motion a transition aimed at bringing Italy back from the brink of economic crisis.

President Giorgio Napolitano accepted Berlusconi's resignation after a meeting in the presidential palace, his office said.

Berlusconi, who failed to secure a majority in a crucial vote on Tuesday, handed in his resignation after parliament passed a package of measures demanded by European partners to restore market confidence in Italy's strained public finances.

Former European Commissioner Mario Monti is expected to be given the task of trying to form a new administration to face a widening financial crisis which has sent Italy's borrowing costs to unmanageable levels.