He could also ask another leader to form a governing coalition.
Sergio Romano, political commentator at the Italian daily Corriere della serra, told Al Jazeera: "Early elections are definitely a possibility but to go to the polls with the present electoral law would be disastrous.
If Prodi fails, one possibility would be a neutral governemt introduced to last at least a year, that would have very specific commitments, one being the drafting of a new electoral law, the budget for 2008, and also other things that can be more easily done in a situation of political interval.
Technical governments can be considerably more efficient that political ones."
Prodi, 67, was said by aides to be ready to stay on "if and only if" he got the full support of his majority, which ranges from Catholic centrists to communists and greens.
Silvio Sircana, Prodi’s spokesman, said: "Prodi has acknowledged this is a serious crisis and he doesn't have a majority in the Senate.
"He is ready to carry on as prime minister if, and only if, he is guaranteed the full support of all the parties in the majority from now on."
Silvio Berlusconi, Prodi's conservative predecessor who was narrowly defeated in an April election, had predicted Prodi would not last long because of quarrelling between coalition parties.
Romano said: "[If Prodi stays, his government] would definitely be vulnerable, but he would try to create a new, stronger coalition. And his strongest argument is 'do we want Berlusconi to come back?'
I don’t think [Prodi] will succeed though, because the differences of opinion within the coalition are too great, especially on foreign policy."
Prodi's government was Italy's 61st since 1945.
A former president of the European Commission, Prodi took the decision to resign after the senate, where he had a single seat majority, rejected a motion supporting foreign policy.
Although not obliged to step down, he had little choice after Massimo D'Alema, the foreign minister, turned the vote into a test of government strength by saying that if the coalition could not pass the motion, it should resign.
Romano said there was a great deal of disappointment among Italians about the political instability and that "the left felt that that government would change things from the Berlusconi era".
Prodi had repeatedly resorted to confidence votes to bring fractious allies in line over issues ranging from the budget and gay rights to Italy's role in Nato peacekeeping in Afghanistan.
Pacifists also opposed Prodi's approval for the Pentagon to expand a military base in northern Italy and thousands of them, including coalition leaders, marched in protest last weekend.