A total of 316 deputies in the lower house of parliament voted in favour while 302 voted against [Reuters]

Silvio Berlusconi, the Italian prime minister, has narrowly won a crucial vote on a much-altered austerity plan seeking to stem a debt crisis that threatens to help tear apart the eurozone.

The ballot on the $73.8bn mixture of tax hikes and spending cuts was cast as a vote of confidence in Berlusconi's government.

A total of 316 deputies in the lower house of parliament voted in favour while 302 voted against the measures.

The senate, or upper house, voted a second time on Wednesday evening, giving the austerity measures final approval. 

The government hopes that the measures, coupled with a $65.6bn plan approved in July, will help bring the country's budget back into balance in 2013.

Hundreds of demonstrators, some unleashing smoke bombs and others hurling paint, clashed with police in riot gear in the streets near parliament as legislators were voting.

Attention now turns to whether Berlusconi's scandal-plagued government will get down to implementing the promised reforms.

There are also questions on whether more austerity measures will be needed to head off a crisis that has driven the country's borrowing costs close to unmanageable levels.

"Now the key is determination and implementation of the measures," Christine Largade, the International Monetary Fund (IMF) chief, told La Stampa daily ahead of Wednesday's vote.

"It's the only way to convince markets and other partner countries of the seriousness of the initiatives taken."

The bill's chaotic passage has already exposed deep divisions in Berlusconi's fractious coalition and triggered protests as well as doubts over Italy's will to follow through on its plans.

Markets, already on edge over Greece, have turned on Italy with a vengeance over the past two months, hammering bonds and banking stocks due to concerns about a chronically stagnant economy and the sustainability of a $2.6 trillion debt mountain.

Recent bond buying by the European Central Bank (ECB) offered a brief respite but a spike in yields over the past week triggered fresh alarm bells and raised the spectre of a full-scale crisis in Italy that could rip apart the single currency.

Yields on Italy's 10-year bonds dropped back to just over 5.6 per cent on Wednesday, but not far from levels that topped 6 perc ent before the ECB intervention.

Milan's blue-chip stock index pared back early losses to rise 2.3 per cent in afternoon trade.

Source: Agencies