Italian Prime Minister Silvio Berlusconi suffered a huge humiliation in parliament Tuesday in a vote that indicated he no longer had a majority and ratcheted up pressure on him to resign.
Berlusconi's government won a key budget vote after the opposition abstained but obtained only 308 votes compared with an absolute majority in the lower house of 316 votes.
Pier Luigi Bersani, leader of the main opposition Democratic Party, said Italy ran a real risk of losing access to financial markets after political uncertainty pushed yields on government bonds towards a red line of 7 percent.
I ask you, Mr Prime Minister, with all my strength, to finally take account of the situation ... and resign, Bersani said immediately after the vote.
The opposition is now expected to table a no-confidence motion against Berlusconi.
Defence Minister Ignazio La Russa said the 75-year-old media magnate would consult head of state Giorgio Napolitano on his next move. Napolitano would be in charge of the crisis if Berlusconi stepped down.
La Russa said all options were open after the vote and the government would decide its next move in coming hours.
Berlusconi, weakened by sex and legal scandals, a string of political setbacks and most crucially a loss of confidence by financial markets, has been on the ropes for weeks.
Tuesday's events seemed to be pushing him towards inevitable resignation. He left parliament after the vote, looking angry, to consult with his senior aides.
BLOW FROM BOSSI
Earlier, Berlusconi's key coalition ally Umberto Bossi, head of the devolutionist Northern League, said Berlusconi should be replaced by Angelino Alfano, secretary of the premier's PDL party.
We asked the prime minister to stand down, Bossi told reporters outside parliament.
Berlusconi had remained defiant ahead of Tuesday afternoon's vote on a public finance measure, rejecting calls from all sides to step down and trying to win back a large group of rebels in the PDL. The vote showed he had failed to stem the revolt.
Bossi's action and the parliamentary vote could finally tip the balance against him as red lights flash on bond markets about Italy's instability.
Market reaction after the parliamentary vote was tentative, reflecting uncertainty about how close Berlusconi was to resigning.
The League, and many members of the PDL, are believed to want Berlusconi to make way for a new centre-right government to tackle the grave economic crisis and restore the confidence of markets without handing power to a transitional administration.
The centre-left opposition said they abstained to lay bare the weakness of Berlusconi's support, while allowing the passage of a bill that is vital for government funding.
While Berlusconi's demise has turned into what commentators are calling a long agony, interest rates on Italy's debt have soared to levels that are causing deep concern about the survival of the euro zone if its third largest economy cannot service its debts.
BOND YIELDS SOAR
Yields on Italy's 10-year benchmark bonds rose to 6.74 percent Tuesday before dropping back. Analysts said Italy was reaching the point at which Portugal, Greece and Ireland had been forced to seek a bailout.
Finnish Prime Minister Jyrki Katainen said Italy was just too big to bail out. It is difficult to see that we in Europe would have resources to take a country of the size of Italy into the bailout program, he told parliament in Helsinki.
As the spread between Italian and German bonds -- a reflection of the extra risk of holding Italian bonds -- approached 5 percent, Italian employers' association leader Emma Marcegaglia said: We can't go on like this for long.
Analysts say current interest rates, if maintained, would cancel out the budget savings planned as part of a painful austerity program.
Berlusconi, who has dominated Italian politics for 17 years, is believed to have wanted to carry on until Christmas so that Italy would then go to early elections in 2012, but Tuesday's vote appeared to make this unlikely.
Even if Berlusconi goes, there is no guarantee that reforms to cut massive debt and boost growth will be quickly implemented. There is no agreement among political parties on either a national unity or technocratic government.
Berlusconi and his closest allies say appointment of a government of technocrats -- the option favoured by markets -- would be an undemocratic coup that ignored the 2008 election result that brought the centre-right to power.
He says the only alternative to him is to hold elections, a year ahead of schedule.
(Additional reporting by Paolo Biondi, Giselda Vagnoni, Roberto Landucci, Philip Pullella and Catherine Hornby; Editing by Andrew Roche)