Silvio Berlusconi has quit as prime minister after the Italian parliament approved on a package of austerity measures.
Members of the lower house voted 380-26 in favour of the legislation on Saturday afternoon, there were two abstentions.
The reforms, approved by the Senate on Friday, are designed to reassure the markets Italy will be able to resolve its debt issues.
Among the measures included in the finance bill is an increase in VAT from from 20% to 21% and a freeze on public-sector salaries until 2014.
Berlusconi has said he would step down once the legislation was put in place and markets will be waiting to see how the transition is managed.
He met Italian president Giorgio Napolitano to hand in his notice after a final meeting of his cabinet. Italian news agency Ansa quoted Berlusconi as telling aides: "This is something that deeply saddens me".
Demonstrators chanting "resign, resign, resign" had gathered outside parliament and it has been reported that Berlusconi's car was pelted with coins as it drove to the presidential palace.
News of his resignation was greeted with celebrations in central Rome.
It is expected that the former European Commissioner Mario Monti will head a technocratic cabinet to steer the country through its current turmoil.
Italy has come under immense pressure from investors as confidence in its government collapsed and hold-ups in the creation of vital European stability mechanisms drove speculation that the country could be on the verge of seeking debt relief.
The yield on the country's 10-year bonds rose above 7% on Wednesday, although buying by the European Central Bank (ECB) brought the figure down on Thursday.
Berlusconi's imminent departure will rob European politics of one of its most colourful characters, but it will provide some relief for markets that have been battered by the routine disagreements around vital legislation, the slow progress of reform and the public disagreements with the finance minister, Giulio Tremonti, that have characterised the prime minister's crisis response.
Having served three terms in office 75-year-old Berlusconi was Italy's longest serving post-war prime minister.
The billionaire media-mogul was first elected as prime minister in 1994 having founded his own political party, Forza Italia. He went on to secure two further victories in 2001 and 2008.
Berlusconi did lose power to left-wing Romano Prodi in 1996 and 2006. But bounced back both times. This time it seems less likely the great survivor of European politics will be able to fashion a return.
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