Italy is facing the prospect of early elections after prime minister Mario Monti said he would soon resign and Silvio Berlusconi announced he would run for the top job for the sixth time in two decades.

Mr Monti said he would step down as soon as parliament approved next year's budget, which means elections could now be as early as February - well before the government's mandate runs out in late April.

"I have matured the conviction that we could not continue like this any longer," Mr Monti was quoted as saying in an interview with top-selling daily Corriere della Sera, a day after his dramatic move.

Mr Monti said he took his decision after Mr Berlusconi's People of Freedom (PDL) party withdrew their support for him last week.

Mr Monti said he would step down as soon as parliament approved next year's budget. ( Vincenzo Pinto: AFP )

Party chief Angelino Alfano told parliament on Friday that Italy's debt, unemployment and tax rates had risen while the economy had plunged since Mr Monti had taken over in November 2011. Mr Monti leads a non-elected cabinet of technocrats.

Mr Alfano went back on the offensive on Sunday saying Mr Monti's government had made "grave errors".

"We wanted to signal Italians' unease with his economic policies," he said.

Asked about several items of legislation still before parliament, Mr Alfano said his party would only back the budget and a decree to keep open a troubled steel mill in southern Italy that employs thousands of people.

Following talks between Mr Monti and president Giorgio Napolitano on Saturday, the president's office said Mr Monti "does not think it possible to continue his mandate and consequently made clear his intention to present his resignation."

Analysts said Mr Monti's decision to speed up the election could also be a way for him to prepare his own entry into politics after Mr Berlusconi announced his dramatic return.

The three-time prime minister announced his return to the fray despite a tax fraud conviction earlier this year and an ongoing trial for having sex with an underage 17-year-old prostitute and abusing his powers when premier.

"I am running to win," he said on Saturday, after declaring in October that he would not run.

He added: "When I did sport, when I worked and studied, I never entered into a competition to be well-placed but always to win."

Italy 'left on its knees'

Most recent polls suggest Mr Berlusconi's party is running in second or even third place, with the main centre-left Democratic Party led by Pier Luigi Bersani expected to win the elections.

Erik Nielsen, chief economist at UniCredit, said he was "not seriously worried" about the prospects for Italy and predicted either a Bersani-led coalition or a new Monti government after the election.

More than three million centre-left voters took to the polls earlier this month to nominate Mr Bersani as their candidate, a former communist with liberal reformist credentials and experience in government.

Some polls put in second place the Five Star Movement, an internet-based group led by former comedian and populist blogger Beppe Grillo.

In a blog post on Sunday, Mr Grillo criticised Mr Monti, saying he was "leaving a country on its knees."

"Watch out for the anger of Italians," he warned.

Primaries held by the movement this month picked dozens of mostly young parliamentary candidates in their 20s and 30s who are campaigning on a series of grassroots issues and environmental causes.

The PDL party had also been due to hold primaries later this month but was forced to cancel them after Mr Berlusconi announced his surprise return.

The party has been riven by infighting ever since Mr Berlusconi stepped down. It has also been hit by a series of scandals over abuse of public funds.

Experts say a campaign against some of Mr Monti's budget cuts and austerity measures could nevertheless play well, as many Italians are feeling the pinch.

AFP