European Commission President Jose Manuel Barroso has issued a warning about the consequences of political instability in Italy.

He was responding to the announcement by the Italian Prime Minister, Mario Monti, of his intention to step down following the withdrawal of support in parliament of the former leader Silvio Berlusconi and his party.

Speaking to business daily Il Sole 24 Ore, Mr Barroso said Italy, the eurozone's third largest economy, remained at risk of a renewed bout of financial crisis, despite months of improving market confidence.

Mr Barroso said that "The next elections must not serve as a pretext for putting in doubt how indispensable these measures are," 

"The relative calm on the markets does not mean we are out of the crisis," he added.

Mr Monti's announcement followed an earlier statement from Berlusconi of his intention to run for office again next year.

Mr Berlusconi was forced to resign under pressure from the European Union.

The media tycoon has been convicted of fraud and still faces sex crime allegations.

The Italian parliament is already poised to pass the budget by Christmas, and so Mr Monti's resignation probably brings the expected vote forward by no more than a month to February.

Elections must follow no more than 70 days after President Giorgio Napolitano dissolves parliament.

Mr Monti's move turns the tables on Mr Berlusconi, who seemed to have once again seized a political opportunity to keep his party in the political game.

The move comes just a year after Mr Berlusconi was forced to resign amid a sex scandal and a debt crisis.

At a conference in France earlier, Mr Monti, widely credited with restoring Italy's international credibility after the scandal-plagued Berlusconi era, appeared to take aim at his predecessor, warning against "populism".

He said Italy should not go back to where it was when he took over for Mr Berlusconi a year ago.

Following a two-hour meeting with President Napolitano, Mr Monti warned that not approving the budget "would render more serious the government crisis, also at a European level,"

He said that after it is approved, his resignation would be "irrevocable".

Leaders of both Berlusconi's centre-right People of Freedom (PDL) party and the centre-left Democratic Party (PD), which is leading in the opinion polls, said they were willing to accelerate the passage of the budget.

"Faced with the irresponsibility of the right that betrayed a commitment it made a year ago before the whole country... Mr Monti responded with an act of dignity that we profoundly respect," said PD leader Pier Luigi Bersani.

"We are ready to approve the budget in the fastest possible manner," he said in a statement.

Italians will vote in the middle of a severe economic crisis, with a recession that began mid-way through last year showing no signs of abating, a massive public debt and unemployment at 11.1%, a record high.

With the support of a cross-party alliance including both the PD and the PDL, Mr Monti imposed tax hikes and spending cuts to bring borrowing costs under control and undertook a series of reforms to improve the competitiveness of the economy.

But Mr Berlusconi said last Wednesday that the former economics professor's austerity policies had left Italy facing a "recessive spiral without end".