Italian Prime Minister Enrico Letta's government teetered on the verge of collapse after allies of former leader Silvio Berlusconi, led by Deputy Premier Angelino Alfano, said they planned to quit the cabinet.
The nation's leaders stopped short of dissolving the five- month-old administration.
It has invoked procedure and scheduled a meeting between Mr Letta and President Giorgio Napolitano today for about 6pm in Rome.
Mr Berlusconi, 77, said he will push for snap elections, while Mr Letta plans a confidence vote in parliament on 1 or 2 October or to seek a new majority.
Mr Napolitano, 88, said dissolving parliament would be a last resort, Ansa reported.
Mr Letta's government has been torn apart by legal troubles facing Berlusconi, whose criminal tax-fraud conviction subjects him to expulsion proceedings in parliament.
Mr Letta needs 24 votes in the Senate to secure a new majority without Mr Berlusconi, Corriere Della Sera reported.
To do so, the premier must win over opposition politicians or convince members of Berlusconi's People of Liberty party to abandon their leader.
Relentless political jockeying that has defined Mr Letta's five-month tenure has already thwarted efforts to push through important reforms.
The reforms are needed in Italy to emerge from a two-year recession, a decade-long economic lethargy, a €2 trillion public debt and youth unemployment of around 40%.
The resignations will delay those reforms even further.
Late on Friday, the cabinet failed to agree vital fiscal measures to bring the budget deficit within EU limits, leaving the fragile coalition of traditional rivals from the left and right near total breakdown.
Tensions between the two sides had been rising for weeks following moves to expel Mr Berlusconi from parliament after his conviction for tax fraud last month.
The Friday cabinet meeting had been intended to find funding to avert an increase in sales tax from 21% to 22%. Fiercely opposed by Mr Berlusconi's party, it will now kick in from Tuesday.
"The decision taken by Prime Minister Enrico Letta to freeze government activities, and therefore setting off an increase in sales tax, is a serious violation of the pacts on which this government was formed," Mr Berlusconi said in a statement yesterday.
Mr Letta shot back later in the evening, accusing the former prime minister of telling a "huge lie" and of using the sales tax issue as an alibi for an action motivated by his legal problems.
MPs from Mr Berlusconi's People of Freedom party this week threatened to walk out of parliament if a senate committee meeting on 4 October voted to begin proceedings to expel their leader, who turns 77 today, under laws barring convicted criminals from parliament.
Some opposition politicians called for early elections, but Deputy Economy Minister Stefano Fassina, from Mr Letta's Democratic Party, said he expected a new coalition could be formed.
"I don't see elections. We won't go to them, we will find a solution in parliament," Mr Fassina told Italian television.
"I am sure there is a majority in parliament able to avoid elections."
NEW GROUPING
Mr Letta has a commanding majority in the lower house, and if he can gain support from a few dozen Senators among the PDL or opposition groupings such as the anti-establishment 5-Star movement, he could form a new government.
Italian President Giorgio Napolitano, who has to either call new elections or oversee the creation of a new coalition and subsequent government, gave renewed signals yesterday that he did not want the country to return to the polls.
"We need a parliament that discusses and works, not that breaks up every now and then," the president said in Naples.
"We do not need continuous election campaigns, we need continuity of the government's actions, decisions and its measures to resolve the problems of this country," he said.
The political convulsions have increasingly worried investors, although with the European Central Bank guaranteeing stability in the markets, there has so far been less panic than seen during previous crises.
The ECB's next board meeting is on Wednesday.
Italy's borrowing costs hit a three-month high at an auction of 10-year bonds on Friday, while the premium investors demand to hold Italian government debt rather than German paper widened to about 267 basis points from under 250 at the start of the week.
"We are paying for our political instability," Labour Minister Giovannini told Rai.
As of Friday, Italy has raised around 81% of its funding target of €470bn for the whole year.
