Italian Prime Minister Enrico Letta said he would tender his resignation paving the way for Matteo Renzi to take the helm of Italy's third government in less than a year.

The decision to resign came after the Democratic Party, the largest party in the ruling coalition, supported a call by its 39-year-old leader Mr Renzi for a more ambitious government to pull Italy out of its economic slump.

"Italy cannot live in a situation of uncertainty and instability. We are at a crossroads," Mr Renzi told the 140-strong leadership committee.  

Mr Letta did not attend the PD meeting, saying he wanted his party to decide freely whether to continue supporting him or not.

In a statement after the meeting, Mr Letta said he would tender his resignation to President Giorgio Napolitano on Friday.

Napolitano is then expected to call on Mr Renzi to form a new administration.

Growing criticism over the slow pace of economic reform has left Mr Letta, a low-key moderate appointed to lead the cross-party coalition patched together after last year's deadlocked elections, increasingly isolated.

"People have accused me and the PD of having an outsize ambition. I don't deny this. We all need to have this, from me to the last party member," Mr Renzi said in his speech to the PD's leadership committee.

"I am asking you to help us get Italy out of the mire," he said.

The latest bout of turmoil in Italy, the euro zone's third-largest economy, has so far had little impact on financial markets, in contrast with the volatility seen during previous crises, such as the stalemate after last year's election.

However, the continual uncertainty has held back any concerted effort to revive an economy struggling to emerge from its worst slump since World War Two or overhaul a political system blamed for hampering any deep reform programme.

In his speech, Mr Renzi acknowledged that forcing Mr Letta out and trying to form a new government with the existing centrist and centre-right coalition partners carried risks for both the government and himself personally.

But he said there was no alternative.                 

"He was supposed to be the outsider who was going to renewthe PD. Now, as soon as he gets close to power, he's behavingexactly like all the others," he said.

On Thursday, Angelino Alfano, head of the New Centre Rightparty that supports the ruling coalition, said Letta could counton a "loyal, correct and fruitful alliance" as long as heretained the backing of the PD. Alfano was due to speak later inthe evening on Thursday.