Giuliana Sgrena, 56, a veteran Middle East correspondent for the leftist Il Manifesto daily, was abducted a month after French journalist Florence Aubenas disappeared in Baghdad, feared kidnapped.
Sgrena was snatched in broad daylight near Baghdad University, minutes after she called the Rome bureau of her newspaper to say that she was safe.
Within hours, Italian Prime Minister Silvio Berlusconi said talks had begun to try to secure her release, as the so-called Islamic Jihad Organisation handed him a chilling 72-hour deadline to pull his 3000 troops out of Iraq.
"The negotiating machinery has been set in motion," Berlusconi told a meeting of his ruling party, Forza Italia, hoping that it would be possible "to achieve a solution quickly".
The fervent supporter of the 2003 US-led invasion of Iraq said he was summoning top cabinet members to address the situation.
Foreign Minister Gianfranco Fini summoned the Iraqi ambassador to urge Baghdad to do all it could to secure Sgrena's release.
"We give the Italian government 72 hours to recall its troops from Iraq or else we will communicate other messages to you," said a statement posted on the internet in the name of the so-called Islamic Jihad Organisation.
Giuliana Sgrena was seized near
the Mustafa mosque
"The journalist's kidnapping is nothing other than a message to the Italian government, led by Prime Minister Berlusconi that you will never be secure as long as you have a soldier in Iraq," it added.
Sent to Baghdad to cover Sunday's elections, Sgrena was described by colleagues as an Arabic-speaking feminist with a passionate interest in Islam.
Story on refugees
Fabio Chiucconi, a journalist for Italian state television RAI, said Sgrena had gone to the Mustafa mosque inside Baghdad University to research a story on refugees from Falluja who had set up tents there.
"When they left the refugee camp, a small black car blocked their vehicle. Four gunmen got out and they pulled the female journalist out of her car and they tried to kidnap the other people as well," said a university guard.
"But we opened fire on them, so they kept just the journalist," the guard said.
Since a US-led assault on Falluja in November, more than 1000 people from 117 families have been camping outside the mosque.
Sgrena called her Rome bureau moments before her abduction, Il Manifesto co-editor Gabriele Polo said.
"Giuliana called us a quarter of an hour ago to say she was fine, but five minutes later her interpreter rang us back to say that she had been kidnapped near a mosque," Polo said.
'I heard the shots'
Barbara Schiavulli, a reporter working for Italy's Grt radio, said she had been on the telephone with Sgrena when the abduction took place.
"She called me as the kidnappers were taking her away. I heard the shots and shouted 'Giuliana, Giuliana', but she didn't reply," she told Italian news agency Ansa.
Ten days ago, gunmen tried to seize another Western journalist working on the same story at the mosque. But his driver managed to flee the abductors.
French reporter missing
Aubenas, a 43-year-old correspondent for the French newspaper Liberation, had been researching details on the mosque before she and her Iraqi translator Husain Hanun al-Saadi vanished on 5 January.
Sgrena has worked for Il Manifesto since 1988 and has spent time in Afghanistan and Iraq.
"Giuliana is petite, reserved and the complete opposite of what you'd image a war correspondent to be, but she fears nothing," said her editor Loris Campetti.
"She has very good contacts in Baghdad, including with the ulamas [Muslim clergy], and is against the war, in keeping with the Manifesto line. She was never embedded and wrote very personal and documented reports."
The media rights watchdog Reporters Without Borders said it was extremely worried about Sgrena's abduction and called for an international campaign to push for her immediate release.