David Cameron has said that the UK is preparing for "all eventualities" as the crisis in the eurozone threatens to spiral out of control.

Markets have been in turmoil as the Italian government teeters on the brink of collapse. Prime Minister Silvio Berlusconi has promised to stand aside once austerity measures in Italy are passed, but the country's cost of borrowing is at an unsustainably high level. Many in the markets fear that the country will need a bailout that European institutions cannot afford.

Speaking to a UK Trade and Invest conference in London, the prime minister said on Thursday that the situation in Italy represented a "clear and present danger" to the eurozone, and urged immediate action.

"If the leaders of the eurozone want to save their currency then they – together with the institutions of the eurozone - must act now. The longer the delay, the greater the danger," he said.

Reuters reported on Thursday that the German and French leaders had been discussing a potential reduction in the size of the eurozone, and despite denials from the German government, many in the markets have seen this as an increasingly likely scenario.

While a breakup of the eurozone was not in the UK's interests, Cameron said, the country had to be ready.

"We have to keep the British economy safe, to take the British economy through this storm. That means preparing for all eventualities," he said.

Yields on Italian 10-year bonds hit euro-era record highs of 7.4% on Wednesday, although an auction on Thursday morning, backed by intervention by the European Central Bank (ECB), saw that fall to below the 7% mark on Thursday morning.