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Italian Premier Silvio Berlusconi arrived at the presidential palace tonight to hand in his resignation.

In stepping down now he ended a 17-year political era but also sets in motion a transition aimed at bringing the country back from the brink of economic crisis.

Berlusconi's motorcade drove by hundreds of protesters and a handful of supporters who massed Saturday night outside the presidential palace.

The palace announced about 8.40pm (BST) that the incumbent prime minister of three years, the last of his three terms in office dating back to 1994, had formally resigned.

Former European commissioner Mario Monti remained the top choice to try to steer the country out of its debt woes as head of a transitional government.

President Giorgio Napolitano is expected to meet Sunday with Italy's political forces before deciding how to proceed.

Berlusconi's move followed the Italian parliament's lower chamber passing European-demanded reforms.

A chorus of Handel's "Alleluia," performed by a few dozen singers and classical musicians, rang out in front of the president's palace as thousands of Italians poured into downtown Rome to rejoice at the end of Berlusconi's scandal-marred reign.

Hecklers shouted "Buffon, Buffon!" - buffoon in Italian - as Berlusconi's motorcade pulled out of his residence and into the presidential palace across town, where he has said he would tender his resignation amid weeks of market turmoil.

Respected former European commissioner Mario Monti remained the top choice to try to steer the country out of its debt woes as the head of a transitional government, but Berlusconi's allies remained split over whether to support him.

Their opposition wasn't expected to scuttle President Giorgio Napolitano's plans to ask Monti to try to form an interim government once Berlusconi resigns, but it could make Monti's job more difficult.

Napolitano is expected to hold consultations Sunday with all of Italy's political forces before deciding how to proceed.

Berlusconi's resignation was set in motion after the Chamber of Deputies, with a vote of 380-26 with two abstentions, approved economic reforms which include increasing the retirement age starting in 2026 but do nothing to open up Italy's inflexible labor market.

The Senate on Friday easily passed the measures and Napolitano signed the legislation Saturday, paving the way for Berlusconi to leave office as he promised to do after losing his parliamentary majority earlier in the week. He chaired his final Cabinet meeting Saturday evening, after which he was expected to head to Napolitano's palazzo to tender his resignation.

Berlusconi stood as lawmakers applauded him in the parliament chamber immediately after the vote. But outside his office and in front of government palazzos across town, hundreds of curiosity-seekers heckled him and his ministers, massing to witness the final hours of his government.

"Shame!" and "Get Out!" the crowds yelled, many toting "Bye Bye Silvio Party" posters as they marched through downtown Rome in a festive indication that for many Italians, like financial markets, the time had come for Berlusconi to go.

Berlusconi supporters were also out in force, some singing the national anthem, but they were outnumbered.

Earlier in the day, Berlusconi lunched with Monti in a clear sign the political transition was already under way, news reports said.

While members of his coalition and the euroskeptic Northern League remained opposed to Monti's nomination, some lawmakers suggested they could support a Monti-led government for a few months to enact the additional EU-demanded reforms before elections are held in early 2012.

Napolitano appealed for lawmakers to put the good of the country ahead of short-term, local interests - an indirect appeal to members of Berlusconi's party and the allied Northern League to work with the new government.

"All political forces must act with a sense of responsibility," he said.

It's an ignoble end for the 75-year-old billionaire media mogul, who came to power for the first time in 1994 using a soccer chant "Let's Go Italy" as the name of his political party and selling Italians on a dream of prosperity with his own personal story of transformation from cruise-ship crooner to Italy's richest man.

While he became Italy's longest-serving post-war premier, Berlusconi's three stints as premier were tainted by corruption trials and accusations that he used his political power to help his business interests.

His last term has been marred by sex scandals, "bunga bunga" parties and criminal charges he paid a 17-year-old girl to have sex - accusations he denies.

Italy is under intense pressure to quickly put in place a new and effective government to replace him, one that can push through even more painful reforms and austerity measures to deal with its staggering debts, which stand at EUR1.9 trillion ($2.6 trillion), or a huge 120 percent of economic output. Italy has to roll over a little more than EUR300 billion ($410 billion) of its debts next year alone.

Markets battered Italy this past week amid uncertainty that Berlusconi would really leave and questions over whether Italy's notoriously paralyzed parliament could rally around a replacement. But Italy's borrowing rates pulled back after Napolitano made clear he intended to tap the politically neutral economist Monti to try to head an interim government to push the reforms through.

The yield on benchmark Italian 10-year bonds fell to 6.48 percent Friday, safely below the crisis level of 7 percent reached earlier this week.

Greece, Ireland and Portugal all required international bailouts after their own borrowing rates passed 7 percent. The Italian economy would not be so easy to save. It totals $2 trillion, twice as much as the other three countries combined.

An Italian default could tear apart the coalition of 17 countries that use the euro as a common currency and deal a strong blow to the economies of Europe and the United States, both trying to avoid recessions.

The head of the International Monetary Fund, Christine Lagarde, said Saturday that Italy's political transition over the next few days should send a "clear sign of clarification and of credibility" that the country is now on the right path to get its finances back in order.

Speaking to reporters in Tokyo, Lagarde had high praise for Monti, saying she had great esteem for the "quality" economist with whom she had long enjoyed a "extremely warm" and effective relationship.

The IMF has a key role to play over the next few months in overseeing Italy's efforts to pull itself back from a Greek-style economic disaster, monitoring how it implements reforms to rein in debt and spur growth, which is projected at a scant 0.6 percent this year and 0.3 percent next year.

Amid market turmoil last week, Berlusconi was forced to ask for IMF monitoring of Italy's finances, a humiliating prospect for the eurozone's third-largest economy and an embarrassment for the long-defiant Berlusconi.

The premier, however, received a warm sendoff from one of his closest pals, Russian Prime Minister Vladimir Putin, who called Berlusconi "one of the last Mohicans of European politics" who had brought political stability to Italy.