Italian Prime Minister Silvio Berlusconi said on Tuesday he would resign after suffering a humiliating setback in parliament that showed a party revolt had stripped him of a majority.

Berlusconi confirmed a statement from President Giorgio Napolitano that he would step down as soon as parliament passed urgent budget reforms demanded by European leaders after Italy was sucked into epicenter of the euro zone debt crisis.

The votes in both houses of parliament are likely this month and they would spell the end of a 17-year dominance of Italy by the flamboyant billionaire media magnate.

His failure to implement reforms fueled a party revolt and Berlusconi told his own Canale 5 television station that the only option was an early election. However, this could prolong the uncertainty that has sapped market confidence.

Berlusconi"s government won a key budget vote after the opposition abstained on Tuesday but failed to secure a majority, obtaining only 308 votes in the 630-seat lower house, eight short of the 316 needed to be sure of passing legislation.

Pier Luigi Bersani, the 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 toward 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.

Italy, considered too big to bail out, has replaced Greece as the main cause for concern in the euro zone"s sovereign debt crisis.

Berlusconi has been on the ropes for weeks, beset by a string of sex and legal scandals, political defeats and, most crucially, a loss of confidence on international markets.

But the 75-year-old, who has dominated Italian politics for most of the past two decades, had steadfastly refused to step down until Tuesday"s vote and battled until the last to win over rebels in his PDL party.

The vote showed he had failed to stem the revolt and Berlusconi"s bitterness was revealed by a photographer who caught the words "8 traitors" jotted down on his notepad in parliament after the result was read out by the speaker.