Fitch cut Italy's credit rating by one notch to A+ from AA- with a negative outlook, following downgrades by Moody's and Standard & Poor's as the country comes under pressure on financial markets.
"The downgrade reflects the intensification of the euro zone crisis that constitutes a significant financial and economic shock which has weakened Italy's sovereign risk profile," Fitch said in a statement.
It said the outlook on Italy's long-term ratings was negative, meaning that they could be downgraded further.
"A credible and comprehensive solution to the crisis is politically and technically complex and will take time to put in place and to earn the trust of investors," Fitch said.
"The high level of public debt and fiscal financing requirement along with the low rate of potential growth rendered Italy especially vulnerable to such an external shock," it added.
It said recent austerity measures had boosted fiscal consolidation but criticised "the initially hesitant response by the Italian government to the spread of contagion" from Europe's debt crisis.
Fitch also slashed Spain's sovereign credit rating by two notches, blaming regional government spending, weak economic growth and the euro zone debt crisis.
Fitch cut Spain's rating to AA-minus from AA-plus and said the outlook was negative, meaning it could be lowered again.
Fitch said that it affirmed its BBB- credit rating on Portugal, bailed out earlier this year, but left the country on a negative outlook, meaning it could be lowered in the future.
Fitch said it would review the ratings outlook this quarter, taking into account "official lending terms, Portugal's performance to date under the EU-IMF programme, the 2012 budget, progress towards privatisation, risks to Portugal's banking system and an updated assessment of Portugal's medium-term economic and fiscal prospects."