Berlusconi stepped down amid jeers, cheers and heckles of "Buffoon" from thousands of people who packed downtown Rome to witness his government's downfall after a stunning week of market turmoil that upended his defiant hold on power and threatened to tear apart the eurozone.
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 the job is Herculean, given the enormity of reforms required and Italy's often-paralyzed parliament.
President Giorgio Napolitano will hold consultations Sunday morning with each of Italy's main political forces before proceeding with the expected request that Monti try to form a new government.
Napolitano has scheduled back-to-back, 10-minute meetings all morning, indicating the talks won't drag on and that by the open of markets Monday, Italy may well have charted a new political course.
Late Saturday, Berlusconi's party said it would support Monti, albeit with conditions.
In front of Napolitano's office, where Berlusconi handed in his resignation late Saturday, protesters uncorked sparkling wine and danced in a conga line, shouting "We're free!" Several dozen singers and classical musicians - complete with music stands and chairs - performed Handel's "Alleluia" to rejoice in the end of Berlusconi's scandal-marred reign and welcome Monti into office.
"I think he (Monti) is going to bring trust back to Italian people who are losing it, are a bit fed up with what's going on and have lost the trust and the respect" they had for Berlusconi, said Sophie Duffort of France, who was in the piazza Saturday night.
Berlusconi supporters were also out in force, some singing the national anthem, but they were vastly outnumbered.
His resignation was set in motion after the Chamber of Deputies approved economic reforms demanded by the European Union which include increasing the retirement age starting in 2026 but do nothing to open up Italy's inflexible labor market.
The Senate approved the legislation a day earlier and Napolitano signed it into law Saturday afternoon, paving the way for Berlusconi to leave office as he promised to do after losing his parliamentary majority earlier in the week.
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, thousands of curiosity-seekers massing to witness his government's final hours heckled him and his ministers.
"Shame!" and "Get Out!" they 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.
It was 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 was marred by sex scandals, "bunga bunga" parties and criminal charges he paid a 17-year-old girl to have sex, accusations he denies.
In the end, his downfall came swiftly: Just last week Berlusconi boldly told a G-20 summit in Cannes, France, he was the only one who could steer Italy out of its economic morass. A week of battering on the markets and the defection of several party members later, his fate was sealed.
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 euro1.9 trillion ($2.6 trillion), or a huge 120 percent of economic output. Italy has to roll over a little more than euro300 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 divided 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 U.S., 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.
By Saturday, he was resigned to reality and held a working lunch with Monti in a clear sign the political transition was already under way, news reports said.
While 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.
In a statement issued late Saturday, Berlusconi's Peoples of Liberty party said its members would support Monti, but added that they would also ensure that Monti's Cabinet, legislative agenda and the timeframe of his government meets their requirements.
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.