The Bank of Italy has cautioned the anti-establishment government in Rome against widening the country's deficit.

The warning from the central bank comes at a time when tensions between the Italian government and the European Commission, which oversees fiscal policy across the EU, are running high. Earlier this week, Brussels sent a letter to Italy, asking the government to explain why the country's debt did not come down in 2018.

"To confine ourselves to seeking temporary relief by raising the public deficit could prove less than effective, even counterproductive, if this led to a deterioration in financial conditions and in the confidence of households and firms," the Bank of Italy said in its annual report Friday.

The central bank added that the risks of higher spending "must not be underestimated."

The current coalition government, in power for about a year, vowed to increase spending to boost the Italian economy. As a result, it has put forward initiatives such as a citizens' income (which aims to help out the poorest) and plans to lower the retirement age.

Such spending plans have raised eyebrows in Brussels, given that Italy has the second highest debt pile in the European Union. The European Commission alerted Rome last autumn that it had to bring down its deficit target for 2019 in order to reduce its debt pile. They both agreed to lower the government's initial deficit target from 2.4% and 2.04% at the end of 2018. However, the Italian government has had to revise upwards that target earlier this year.