Mr Prodi went to the presidential palace on the Quirinale hill to tender his resignation after losing the confidence ballot by 312 votes to 313. "I'm not bitter. Once again, we were consistent to the end," he commented after the vote.
President Oscar Luigi Scalfaro had asked the centre-left coalition government to remain in place to handle day-to-day business, an official communique said. It was not clear whether this would include giving the go-ahead for Nato to use Italian air bases for potential strikes against Serbian forces in Kosovo.
A roar of joy from the opposition benches greeted the announcement of Mr Prodi's defeat. It came after a tense morning in the packed Lower House during which MP Silvio Liotta, a member of the Foreign Minister Lamberto Dini's Rinnovamento Italiano party, stunned the government ranks by announcing that he would defect to the centre-right opposition.
Although early elections are now a possibility, President Scalfaro will consult party leaders to find a workable parliamentary majority before he resorts to dissolving the houses. Mr Prodi himself may be asked to patch together a wider-based coalition to push his cost-cutting 1999 budget through parliament and avert a return to the ballot box.
A jubilant opposition, flushed with its unexpected victory, noisily renewed demands for a snap election after yesterday's vote. "Elections now are the only way forward for a free and democratic nation," said the former prime minister, Silvio Berlusconi, as he left the Lower House. "I see no other democratic alternative."
Mr Prodi tabled a confidence motion on Thursday, after his former left- wing allies in the Rifondazione Comunista party voted to withdraw their support in protest over the 1999 budget. A majority of Rifondazione's Lower House deputies broke with the party and lined up behind Mr Prodi. This made a small majority in favour of the government a probability.
Die-hard Rifondazione supporters celebrated by singing the Internazionale outside the Lower House as the result of the vote was announced.
The task now facing the Italian President is an arduous one in the finely balanced parliament where centrist elements of both government and opposition alliances have shown signs of moving closer to each other. They may break with the current line-ups and form a coalition of their own at the expense of left and right-wing fringes.
The complex situation is compounded by the fact that Mr Scalfaro's seven- year presidential mandate ends next spring. In the six months before his term is up, the head of state cannot dissolve parliament.
Until November, parties keen to avoid a general election will use the ploy of procrastinating over the formation of a new executive; others will press for a snap decision and elections this year.
At 866 days, Mr Prodi's government was the second-longest of the post- war period. It was the fifth during President Scalfaro's term of office and the 54th since the end of the war.Reuse content