All five ministers from Silvio Berlusconi's centre-right party said on Saturday night they were resigning from Italy's grand coalition government in a dramatic move that plunged the country back into political uncertainty and raised the possibility of fresh elections.

Just days before a senate committee is expected to vote for him to be stripped of his seat following a conviction for tax fraud, Berlusconi said he was withdrawing his support from Enrico Letta's government over an increase in sales tax.

Letta, who has fought to hold the coalition together for five months of tensions and threats, called the move "mad and irresponsible" and said it was based on a "blatant lie". The centre-left prime minister will on Sunday meet the president, Giorgio Napolitano, who is known to be desperate to avoid any return to the polls.

Talks will begin on whether an alternative parliamentary majority can be found to support a new Letta cabinet. He had called last week for the government to be put to a confidence vote, and, although it was unclear whether that would go ahead, the prime minister said on Saturday night: "Everyone will assume their own responsibilities before the country in parliament."

Italy, the eurozone's third largest economy, is in its longest recession in decades and can ill afford more instability and rudderless leadership. "Measures we were working on now risk being set back," the labour minister, Enrico Giovannini, told Italian television. "On Monday our borrowing costs are going to rise by many points."

Citing Italy's continuing economic troubles, Beppe Grillo, the figurehead of the opposition anti-establishment Five Star Movement, called for fresh elections. "We need to go to the polls to win and save Italy," he wrote on his blog. "It's the last train."

But Stefano Fassina, the deputy economy minister and Democratic party (PD) MP, insisted the best way forward would be to find a new majority to carry out urgently needed reforms. "We won't go to elections because we will find a solution in parliament. I am sure that in parliament there is a majority that could avoid that," he was quoted by the Ansa news agency as saying.

Berlusconi's move – made on the eve of his 77th birthday – surprised many analysts. Amid threats throughout the summer, some had suspected Berlusconi of bluffing in order to win last-minute concessions on his legal problems. On Friday, a senate committee is due to meet to vote on whether he should be expelled from the upper house of parliament, and by mid-October he has to decide whether to carry out his tax fraud sentence under house arrest or in community service. The committee vote, which is expected to go against him, would still have to be ratified in a full senate vote.

The imminence of these problems appeared to have prompted the billionaire media magnate to side with party hawks, rather than those PdL members who over the summer had been urging a more conciliatory stance within the coalition.

Amid questions over whether the party would back Berlusconi to the hilt, there were hints on Saturday night that the resignations had not met with the approval of all in the party. "I think that a decision of such deep political importance should have required an in-depth discussion," said Fabrizio Cicchitto, one PdL MP.