Prime Minister Silvio Berlusconi repeated promises of economic reform on Tuesday as Italian bonds came under renewed attack in the euro zone crisis and the centre-left opposition asked the president to name a new government.

With markets reeling from an unexpected decision by Greek Prime Minister George Papandreou to hold a referendum over austerity measures demanded by the European Union, Italian bonds were hit by a new wave of selling.

Yields on Italy's 10 year BTP bonds rose to 6.3 percent, an unsustainable level just short of the point they reached in August when the European Central Bank stepped in to prop up the market by buying Italian debt.

The risk premium over benchmark German Bunds rose to more than 450 basis points, the widest spread since the creation of the euro more than a decade ago, while the bluechip FTSE MIB share index was down 6 percent with bank shares sold heavily.

As the turmoil on markets intensified, pressure grew for a solution to stop the emergency facing the euro zone's third largest economy getting out of control, potentially overwhelming the entire bloc.

If 10 year yields get to 7 percent, it becomes increasingly difficult for a country to sustain its debt, said Pavan Wadhwa, global head of interest rate strategy at JP Morgan in London.

Italy is now 50 to 75 basis points away from those levels and our view is that the ECB will be forced to pick up the pace of its bond purchases to avoid Italy being shut out of funding markets, he said.

Berlusconi said he would outline reforms promised to Italy's EU partners at Thursday's meeting of leaders from the Group of 20 economic powers in Cannes, and promised the programme would be implemented with the determination, rigour and speed which the situation demands.

However, Italy's main centre-left opposition party repeated calls for the 75 year-old premier to resign, saying it had asked President Giorgio Napolitano to appoint a new government immediately.

We are pointing to the necessity -- which has now become urgent, a matter of minutes -- for a political change to face the storm, Enrico Letta, one of the Democratic Party's senior leadership team, said in a statement.

Italy is unprepared to deal with the crisis, he said.

CRISIS

As Athens faces the growing risk of a default which would destabilise the euro zone, Italy, the bloc's third largest economy, is now at the centre of the crisis and EU leaders are desperate for it avoid following Greece.

Too big to bail out if its borrowing costs get out of control, its mix of sluggish growth and a mountainous public debt equivalent to 120 percent of gross domestic product poses a threat to the survival of the single currency.

Last week, the Treasury was forced to pay a record yield of 6.06 percent at an auction of its 10 year bonds, a price which would add billions to already heavy interest payments over the coming years if it did not fall.

The ECB intervened again on Tuesday to buy Italian bonds but yields have continued to rise closer to 7 percent, a level which many analysts fear could trigger a so-called buyers' strike where it becomes difficult to sell new bonds.

According to a report by ratings agency Fitch in July, an interest rate of 7 percent would lift interest payments on Italian government debt to 110 billion euros, or 6.1 percent of GDP by 2015, compared with 75 billion or 4.8 percent in 2011.

Berlusconi, mired in scandal and struggling to contain divisions in his centre-right coalition, has promised new reforms including easier rules on redundancies, including for civil servants and an increase in the pension age.

Already there is talk that the package, which follows a series of austerity plans over the past three months, will have to be toughened up with cuts to tax breaks and welfare spending possible to ensure budget targets are met.

There has been widespread scepticism about the scope and timing of the measures but Berlusconi has resisted calls from groups as diverse as the opposition, unions, business leaders and the Catholic church to resign.

He has survived repeated confidence votes in parliament but there is growing speculation that the government will fall in the coming months, leading to elections in spring, the period when elections in Italy are traditionally held.

The opposition is unwilling to wait that long and wants Napolitano to appoint an interim government of national unity, lead by a respected outside figure such as former European commissioner Mario Monti.

Italy's economy, one of the world's slowest growing over the past decade, faces a growing risk of recession next year, its problems underlined by unemployment data on Monday which showed a third of its young people out of work.

(Additional reporting by Valentina Za; Editing by Karolina Tagaris)