Matteo Vanzan, a 23-year-old corporal from near Venice in northeastern Italy, died overnight on Sunday of wounds he suffered from mortar fire during a six-hour battle with forces loyal to the Shia leader Muqtada al-Sadr.
Italy, which has 3000 troops in the US-led occupation force has suffered casualties before.
It lost 17 soldiers and two civilians in a massive bomb attack on their base in al-Nasiriyah on 12 November, and four other civilians were taken hostage on 12 April, one of whom was murdered two days later.
But Vanzan was the first soldier killed in battle, and his mother urged the government in a television interview hours after his death to "bring the others home," adding: "It's not fair to leave them there to die."
The fighting was so heavy, the Italians were forced to abandon a command post overlooking one of the main bridges in the city.
The defence ministry said five other Italian soldiers were injured, while a hospital official in al-Nasiriyah said at least nine Iraqis were killed and 14 injured.
The opposition leader in the lower house of the Italian parliament, Luciano Violante, demanded that Prime Minister Silvio Berlusconi should appear before lawmakers before he travels to Washington on Tuesday for talks with US President George Bush.
Berlusconi has faced demands by
opposition to address the issue
A spokesman for the upper house has said Berlusconi will address parliament on Thursday after he gets back.
While Foreign Minister Franco Frattini said Vanzan had died "while doing his duty to help stabilise and pacify the martyred country," a prominent critic of the government, journalist Lilli Gruber, said "the peace mission has become null and void, if it ever existed."
Gruber, an opposition candidate in next month's European elections who has reported on Iraq for the Italian state-run television channel RAI, said: "Italy should not be involved in a war which the Italian people do not want and which is against the constitution."