Italian Prime Minister Silvio Berlusconi confirmed on Tuesday that he would stand down after a new budget law is approved in parliament.

After the approval of this finance law, which has amendments for everything which Europe has asked of us and which the Eurogroup has requested, I will resign, to allow the head of state to open consultations, he told his own Canale 5 television.

The comment, which confirmed an earlier statement from President Giorgio Napolitano, came after his centre-right coalition failed to secure a majority in a crucial vote in the lower house, securing only 308 votes in the 630-seat chamber.

This parliament today is paralysed, as far as the lower house is concerned, he said.

In the Senate, the centre-right still has a good majority. However with the defection of seven members of the ruling majority today, the government does not have the majority we thought we had and so we have to take account of this situation realistically,

He said Italy was in a difficult position with regard to financial markets and had to demonstrate that it was capable of serious reforms. He added that the only realistic option as far as he could see was new elections.

(Reporting By James Mackenzie)