Silvio Berlusconi will resign as Italian prime minister once austerity measures currently making their way through parliament have been approved, it has been reported.
Earlier on Tuesday he won a vote on the country's budget but lost his majority in the lower house of parliament.
Tuesday's vote came as pressure mounted on the embattled leader to resign, with his key coalition partner Umberto Bossi urging the 75-year-old to stand down.
308 deputies voted for the motion, eight short of a required absolute majority of 316, after Italy's opposition parties abstained and a number of MPs from Berlusconi's coalition defected.
Yields on Italian 10-year bonds hit euro-era record highs of 6.767% on Monday. Rumours that the prime minister was preparing to stand down saw markets bounce, a clear indication that investors saw the scandal-hit 75-year old as a main block to reform.
Italian president Giorgio Napolitano met Berlusconi this afternoon and said he had shown "awareness" of the implications of the vote.
"Once this engagement is fulfilled, the prime minister will hand in his mandate to the head of state who will proceed with appropriate consultations, paying close attention to the positions and proposals of all political forces," President Napolitano said in a statement.
He added that Berlusconi had shown "his awareness of the implications of the results of today's vote" as well as "concern for the urgent need to give prompt answers to the expectations of European partners."
The gaffe prone leader has been much criticised for his handling of the economy during the recent eurozone crisis.
Berlusconi had earlier answered speculation that he would resign on his Facebook page, paraphrasing Mark Twain in a post that read: “Le voce di mie dimissioni sono destituite di fondamento" - "rumours of my resignation are without foundation."
A previous attempt to get the financing bill through parliament last month ended in failure and a confidence vote, which Berlusconi passed.
Before Tuesday, Berlusconi, who has faced numerous trials and had his personal life dragged in front of the world's media, had passed 53 confidence votes.
He has survived political scandals that would have brought down other politicians, in part, analysts said, due to his ability to convene disparate coalition members.
At Coutts, strategist Norman Villamin said that the country was following a path now well trodden by Greece, Ireland and Portugal, all of which needed bailouts from the EU and International Monetary Fund.
"Looking to the evolution of the crisis within the periphery... the sequence of events that followed a sustained rise in 10-year yields to above 6% has been consistent over the past 18 months," Villamin said.
The first stage after this threshold is a push for more austerity measures with international supervision, which is where Italy currently finds itself, he explained. The G20 effectively put Italy on an IMF watch list over the weekend, monitoring the progress of its austerity measures and offering funds, which the country declined.
In the rest of the periphery, the next stage, Villamin said, was a deterioration of the underlying economy, causing the country to miss targets set in their austerity programmes. In the case of Ireland, Portugal and Greece, this happened within two months of their yields passing 6%, and all three sought bailouts soon afterwards.
"Italy appears to be at risk of a similar outcome," Villamin added.
Although Greece has caused severe shocks to resonate across the continent, the risks to Europe and to the global financial system would be significantly greater should Italy fall deeper into its economic troubles. Italy is the third largest economy in the eurozone and a G8 member.