Italian Prime Minister Silvio Berlusconi has told the country's president he will resign after parliament approves an economic reform plan demanded by the European Union. 

A vote on the measure is planned for next week.

Berlusconi met with President Giorgio Napolitano Tuesday after winning a critical budget vote, which a majority of legislators in parliament refused to vote on. Many have said it showed a lack of support for his handling of the country's debt crisis.

The vote, on a routine measure to approve the 2010 state budget, won with 308 votes of approval in the Chamber of Deputies. But 321 deputies did not vote and one abstained. If all 630 legislators had voted, Berlusconi would have needed a 316-seat majority to assure he was still in command.

After the votes were tallied, the opposition immediately called for Berlusconi's resignation to calm bond markets.

Berlusconi's departure would mark the end of 20-year political career as Italy teeters on the brink of being swept into Europe's debt crisis.

Resigning for good of country

The president's office issued a statement Tuesday saying Napolitano would open up discussions on forming a new government once Berlusconi resigns. The statement made no mention of early elections.

Berlusconi said he decided to resign for the good of the country and to help settle uncertain financial markets.

In comments that marked a dramatic shift from his normally defiant tone, Berlusconi conceded he had lost his parliamentary majority during Tuesday's vote and that "things like who leads or who doesn't lead the government" are less important than doing "what is right for the country."

Heading into the vote, Berlusconi's main coalition ally, Northern League leader Umberto Bossi, had urged him to resign.

"We asked him to step aside," said Bossi, the volatile ally who brought down Berlusconi's first conservative government in 1994 when he yanked his support.

Budget vote 'had to pass'

Political observers said a rejection of Berlusconi's latest budget plan would have allowed for a confidence vote. However, observers have noted he has previously survived dozens of such measures during his tenure.

"This wasn’t a confidence vote per se," CBC's Susan Ormiston reported from Rome earlier Tuesday. "It was a vote on the budget, and many people said it had to pass, so that could have been one of the reasons why the opposition simply did not vote. They wanted — they needed — this budget to pass."

News of Berlusconi's resignation come amid more bad news on financial markets for the eurozone's third-largest economy.

The yield on Italy's 10-year bonds rose Tuesday to 6.74 per cent, its highest level since the euro was established in 1999 and nearing the seven per cent threshold that forced Greece, Ireland and Portugal to accept bailouts.

With close to €1.9 trillion ($2.66 trillion) in bonds outstanding, Italy owes more than Spain, Ireland and Portugal combined.

By mid-morning, the yield had eased to 6.66 per cent.

Italy's enormous debts become more and more expensive to service by the day, reflecting a lack of confidence in the country's ability to pay and Berlusconi's ability to lead.

Tuesday's vote was procedural — on 2010 state accounts — which he failed to push through a month ago, triggering a confidence vote he barely managed to survive.

The chaotic state of the governing coalition — with the International Monetary Fund and the European Central Bank sending in teams to monitor Italy's progress — prompted defections within Berlusconi's own political ranks.

Three members of the prime minister's People of Liberty Party defected recently to join the opposition, and six others publicly called on Berlusconi to quit.

With files from The Associated Press