Berlusconi's resignation on Wednesday brings to an end Italy's longest-serving government since the second world war. He had been under pressure to resign since a stinging defeat in regional elections this month.
President Carlo Azeglio Ciampi's office confirmed in a statement that Berlusconi had tendered the resignation of his cabinet, and added that the government would stay on as caretaker.
Earlier on Wednesday, Berlusconi addressed the Senate and informed the country of his plan to step down and form a new government and platform.
It is up to Ciampi to designate a candidate to assemble a new government, or dissolve parliament and call early elections. Ciampi, who begins formal political consultations on Thursday, is expected to give Berlusconi the mandate to form a new cabinet.
"The regional elections showed a clear sign of discomfort," Berlusconi told Senate. "I want to give an adequate political response."
"The regional elections showed a clear sign of discomfort"
Government partners "have all demanded a new government, to be based on the same coalition," Berlusconi said. "I accept this challenge."
Berlusconi said he was confident a new government would relaunch the centre-right coalition ahead of next year's general election.
Berlusconi has been struggling to hold his four-year-old government together, but a senior coalition partner threatened on Tuesday to quit the government in a further setback for the prime minister.
The National Alliance party said it still would support the centre-right coalition, but that the continued participation of its ministers, whose letters of resignation were ready, "depends solely on what Berlusconi will say and do."
The National Alliance is the coalition's second-largest partner after Berlusconi's party. There was little chance that the government could have survived if the party's five ministers, including Foreign Minister Gianfranco Fini, had resigned.
Minister Calderoli pulled out of
the coalition government earlier
Last week, a smaller coalition partner, the Union of Christian Democrats ( UDC) decided to withdraw its three ministers from the cabinet. The tiny New Italian Socialist Party also has pulled out two lower-level officials.
The political turmoil was triggered by a crushing defeat in the 3-4 April regional elections. Berlusconi's popularity has fallen amid sluggish economic growth and Italy's unpopular military mission in Iraq.
Last year, Italy's economy expanded by 1.2%, compared with an average of 2% in the entire 12-nation euro zone, and the government is under pressure from the European Union to contain its growing deficit.
Berlusconi, a media mogul turned politician, passed about $8.6 billion in tax cuts late last year, but the plan almost tore apart his coalition. Many allies said the cuts should have been postponed until 2006, saying Italy's huge debt would not allow for them sooner.
A separate plan to further cut taxes by $16.1 billion this year is also controversial: The National Alliance and UDC say that priority should be given to aiding Italy's underdeveloped south.
The two parties also are unhappy about massive constitutional reform that delegates more power to Italy's regions, and which is backed by another government party, the Northern League.
The reform is awaiting parliamentary approval.
Opposition parties, led by former European Commission president Romano Prodi, have been pressing for early elections. Among their complaints are Berlusconi's handling of the economy and his decision to send Italian troops to Iraq after Saddam Hussein's ouster.
Pressure to pull the troops from Iraq mounted recently after the 4 March killing in Baghdad of an Italian intelligence agent who was escorting a released hostage to freedom. The agent was shot by US troops who opened fire on his vehicle.