The Chamber of Deputies passed the package by a vote of 314-300. The Senate, Parliament's upper chamber, already approved the measures.
Hundreds of demonstrators, some unleashing smoke bombs and others hurling paint, clashed with police in riot gear in the cobblestone squares and streets near Parliament as lawmakers were voting on the measures designed to fend off a financial crisis threatening much of Europe.
Earlier in the day, Berlusconi's government, whose allies had squabbled publicly over the package, won a crucial confidence vote called to discourage debate and hasten approval. European Central Bank and European Union leaders in Brussels had pressed Rome for quick passage to calm markets roiled by a crisis that could endanger the entire 17-member eurozone.
But the planned cuts and taxes have angered many Italians, fueling protests similar to those in other European nations grappling with the economic crisis.
As the street protest heated up, Rome storekeepers hastily shuttered display windows. With police helicopters buzzing overhead, officers in riot gear fanned out through the squares and alleys, herding the protesters away from Parliament and from the downtown palace where Berlusconi resides. At one point an officer struck a protester on his back with a club.
Berlusconi contends that the measures will shave more than euro54 billion ($70 billion) off Italy's deficit over three years through spending cuts, tax hikes, including raising the sales tax from 20 percent to 21 percent, and accelerating reform of the country's costly pension system.
Italy's deficit-to-gross domestic product ratio now stands at 120 percent, one of Europe's highest.
Italy has taken a pounding in the financial markets because of its high debt levels and poor growth. On Tuesday, the Italian Treasury raised euro3.86 billion ($5.27 billion) from the sale of five-year bonds, but it had to pay an interest rate of 5.6 percent - a euro-era record high for Italy.
The debt problems of Italy, the eurozone's No. 3 economy, deepened fears across Europe over the health of the 17-nation eurozone and its vulnerability.
"The attack of the markets against Italy is a head-on assault on the entire eurozone," visiting Germany Economy Minister Philipp Roesler, said in Rome where he held talks with Italian Cabinet ministers.
The austerity measures contained a pledge to balance the budget by 2013, which Industry Minister Paolo Romani called an "an extraordinary signal of stability for our country."
Berlusconi on Wednesday met with Wang Gang, vice chairman of China's main government advisory body, amid speculation that Italy is trying to persuade Beijing to invest heavily in its industries. Romani told reporters that he "can't rule out the purchase of European government bonds by China," the Italian news agency LaPresse reported. "But it will be the Chinese economic system to decide how and when to invest."
Weeks of flip-flopping over the measures as Berlusconi tried to placate bickering allies needed for his government's survival plus sex scandals dogging the premier have triggered speculation over whether the 74-year-old media mogul can keep a strong grip on the coalition.
Berlusconi vows to serve out his five-year term, which ends in spring 2013, and predicts the austerity package will foster such economic recovery that voters will stay loyal to his center-right coalition.
But there is also skepticism by some economists whether the measures can revitalize the anemic economy. Industrialists and union leaders have joined forces in denouncing the package of doing virtually nothing to stimulate Italy's practically flat economic growth.
In tacit admission that Wednesday's package might fall short, lawmakers were starting to consider other steps, including one proposal to end the Catholic Church's exemption from property tax on its extensive real estate in Italy.
Another proposal up for debate was the possibility of yet another amnesty for tax evaders in hopes of bring in revenue. Decades of widespread tax evasion on income by the self-employed is blamed for a large part of Italy's stubborn deficit.
Alessandra Rizzo and Victor L. Simpson contributed to this report.