Italy's president has asked Premier Matteo Renzi to delay stepping down until Parliament can pass a critical budget law due later this month.

The presidential palace said Italy's head of state, President Sergio Mattarella, met with Renzi this evening at the presidential palace in Rome.

The palace said Renzi told the president 'it's not possible to continue in his post' as premier following the resounding defeat Sunday of a referendum on constitutional reforms that Renzi promoted.

Mattarella, considering how Parliament needs to complete its approval of the budget law, 'asked the premier to delay his resignation until that task is accomplished'.

Italian Prime Minister Matteo Renzi (right) arrives by car at the Quirinale presidential palace to meet Italy's President Sergio Mattarella and formally offer his resignation following a crushing referendum defeat

Italian Prime Minister Matteo Renzi arrives at Quirinale Presidential palace in Rome, Italy

Police officers detain a man protesting outside the premier office Chigi Palace in Rome

Renzi had called a referendum on constitutional reforms, which became a vote on confidence in his government.

But the move backfired and he resigned shortly after exit polls indicated a clear defeat, saying: 'I accept all responsibility for this loss. I'll say it out loud.'

Europe was rocked last night after a populist surge against Brussels saw Renzi swept from power.

Germany has today called for calm in the wake of the Italian referendum, claiming the result is 'no reason to talk of an EU crisis'.

This afternoon, markets across Europe were making gains as investors brushed aside concerns over the resignation. The euro had hit a 20-month low earlier against the dollar, but it has since recovered and is now trading higher.

Europe was rocked last night after a populist surge against Brussels saw the Italian prime minister Matteo Renzi (pictured) swept from power

Markets across Europe were making gains this afternoon as investors brushed aside concerns over the resignation. The euro had hit a 20-month low earlier against the dollar, but it has since recovered and is now trading higher

Mr Renzi's opponent Beppe Grillo (pictured) had urged voters to 'go with your gut not your brain' and had called for Italy to ditch the euro

In an emotional press conference, Matteo Renzi said he did all he could, but will resign officially tomorrow when he meets his colleagues

The result in Italy is a further landmark victory for populist movements, following Britain's vote for Brexit and Donald Trump's election win in the US.

Mr Renzi's opponent Beppe Grillo had urged voters to 'go with your gut not your brain' and had called for Italy to ditch the euro.

The prospects of an Italian vote on leaving the single currency – and by extension the EU itself – now draw closer.

Head of Italy's far right Northern League, Matteo Salvini, has called for an immediate election.

German chancellor Angela Merkel's spokesman said the German leader 'took note with regret' of the resignation while her finance minister called for a calm response adding that there's no basis to talk of it triggering a 'euro crisis.'

Wolfgang Schaeuble said: 'There is no reason to talk of a euro crisis and there is certainly no reason to conjure one up.'

Early indications point to the vote on prime minister Matteo Renzi's (pictured, right) reforms being thrown out

People hold placards and chant slogans as they stage a protest against Italian Prime Minister Matteo Renzi and for the constitutional reform referendum

Mr Renzi accepted all responsibility for the stinging loss, saying he felt bitterness, rage, sadness and disappointment, and added: 'I wasn't able to do so [deliver change to Italy], so therefore I will have to leave.'

A rejected vote would reduce the senate's influence and withdraw power from 20 regional governments in the country, gifting power to populists committed to taking the country out of the euro

Markets were braced for a turbulent day today, with the country already facing a major banking crisis.

What should have been a referendum on changes to the upper house of the Italian Parliament had escalated into a vote on Mr Renzi's handling of the crises confronting Italy – economic meltdown and record numbers of migrants.

Having already pledged to step down in the event of a No vote, Mr Renzi's departure will create fresh political instability at home and give fresh momentum to anti-establishment movements across the West.

Mr Renzi said he felt bitterness, rage, sadness and disappointment when he conceded the referendum, adding: 'I'd like to hug each and every one of you.

'We had a chance, but we were not able to convince the majority of our citizens.

'We had millions of votes, which is impressive, but not enough.

'I accept all responsibility. He who fights for an idea cannot lose. The experience with my government will end here.

'You can't pretend for the thousandth time that everything will remain. I wanted to change.

Mr Renzi said he felt bitterness, rage, sadness and disappointment when he conceded the referendum

'I wasn't able to do so [deliver change to Italy], so therefore I will have to leave.'

In an emotional press conference, he said he did all he could, but will resign officially tomorrow when he meets his colleagues.

The result will reduce the senate's influence and withdraw power from 20 regional governments in the country, gifting power to populists committed to taking the country out of the euro who argue the country's economy has stagnated since joining the currency nearly 15 years ago.

An exit poll by the Piepoli Institute/IPR for state television station RAI, estimated the 'No' vote at 54-58 percent against 42-46 percent for 'Yes'.

Two other polls gave 'No' a similar lead of at least 10 points. Voting ended at 11 pm.

Italy is poised to become the next country to reject the establishment as exit polls suggest a referendum protest vote is poised to beat the government

The euro immediately fell against the dollar on the exit polls, slipping to $1.0580 from $1.0625 but has since recovered.

The head of the group of 19 countries that use the euro currency said there was no need for 'emergency steps'.

Jeroen Dijsselbloe said the result 'doesn't really change the situation economically in Italy or in the Italian banks' while ratings agency Standard & Poor's says it will not affect its credit rating for the Italy.

EU finance commissioner Pierre Moscovici played down the impact of the result on the euro and European unity, adding: 'I'm very confident in the capacity of the eurozone to resist all kind of shocks.'

WHAT HAPPENS NEXT FOR ITALY AND THE EUROPEAN UNION? The prospects of an Italian vote on leaving the single currency – and by extension the EU itself – now draw closer. Markets were braced for a turbulent day today, with the country already facing a major banking crisis. What should have been a referendum on changes to the upper house of the Italian Parliament had escalated into a vote on Mr Renzi's handling of the crises confronting Italy – economic meltdown and record numbers of migrants. Having already pledged to step down in the event of a No vote, Mr Renzi's departure will create fresh political instability at home and give fresh momentum to anti-establishment movements across the West. Mr Renzi's defeat quickly soured any jubilation emanating from Vienna. The loss of a pro-European prime minister in Italy – a founder member of the EU and G7 nation – is a much bigger deal than the defeat of an extremist candidate for a ceremonial post in Austria. Italy already stands on the brink of a financial crisis which could have serious implications for the euro if eight crippled Italian banks fail to secure emergency support in the coming weeks. Confirmation of last night's No vote will certainly make it less likely that foreign investors would commit funds to any sort of rescue package. Almost 60 years to the month when the Treaty of Rome gave birth to the European Economic Community – from which the EU has evolved – the city finds itself at the heart of the European story again. Advertisement

French Finance Minister Michel Sapin insisted that the Italian referendum 'is a question of internal politics. The referendum wasn't about Europe.'

But the rejection represents a fresh blow to the European Union which is struggling to overcome an array of crises and was eager for Renzi to continue his reform drive in the euro zone's heavily indebted, third-largest economy.

Italy s proposing to run a budget deficit of 2.4 percent of GDP for the year, significantly higher than the 1.8 percent level it had promised to deliver earlier this year.

Deputies on Friday voted overwhelmingly in favour of a draft 2017 budget that the European Commission has warned will breach EU rules on the management of public finances.

Mr Renzi has said should his reforms be rejected, he would have no interest in running the country.

Luca Comodo, director at polling company Ipsos, told the paper voters think blocking the government's plans is a vote against the establishment and said: 'The south is where protest and rage are amplified.'

Renzi said earlier this month that he would no longer bow to 'diktats' from Brussels over fiscal restraints he regards as counterproductive at a time when most of the eurozone is struggling

The issue has provoked sharp exchanges in recent weeks with Renzi seen in some quarters as Brussels-bashing in the run-up to a December 4 referendum on constitutional reform, on which he has staked his political future.

New spending plans in the budget include two billion euros more for healthcare, one billion for education and measues to help small companies and poorer families.

Renzi said earlier this month that he would no longer bow to 'diktats' from Brussels over fiscal restraints he regards as counterproductive at a time when most of the eurozone is struggling.

He has also threatened to block the approval of the EU institutions' collective budget if other countries do not offer Italy more help in coping with the arrival of thousands of migrants on its southern shores.

A 2017 deficit of 2.4 percent of GDP would leave Italy comfortably within the EU ceiling of three percent.

But the Commission's economists say Rome should bring down its deficit faster to ensure that the upward trend in the country's huge debt mountain - equivalent to over 130 percent of GDP - is reversed.

The 2017 budget law will only be definitively approved once it has been examined by the second chamber of parliament, the Senate, which has not scheduled any debate on it until after the referendum.

Former Italian Prime Minister Silvio Berlusconi cast his ballot to reject the reforms.

He shook hands with election officials and posed for photographers after voting in the capital, Rome.

Berlusconi's Forza Italia party is largely in disarray, with a tax fraud conviction keeping the 80-year-old centre-Right leader out of public office.