Italian Premier Silvio Berlusconi resigned tonight, Italy's presidential palace said.
The move sets in motion a transition aimed at bringing Italy back from the brink of economic crisis.
Cheers broke out in front of the palace in Rome from the hundreds of people who gathered to witness Mr Berlusconi's final act in office, ending a 17-year political era.
A chorus of Handel's Alleluia, performed by a few dozen singers and classical musicians, rang out in front of the palace as thousands of Italians poured into central Rome to rejoice at the end of Mr Berlusconi's scandal-marred reign.
Hecklers shouted "Buffoon, Buffoon!" - as Mr Berlusconi's motorcade entered and exited the presidential palace, where he tendered his resignation to President Giorgio Napolitano.
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.
Mr Berlusconi's allies remained split over whether to support Mr Monti.
Their opposition was not expected to scupper Mr Napolitano's plans to ask Mr Monti to try to form an interim government, but it could make Mr Monti's job more difficult.
Mr Napolitano is expected to hold consultations on Sunday with all of Italy's political forces before proceeding with his expected nomination of Mr Monti.
Tonight Mr Berlusconi's party said it would support Mr Monti, albeit with conditions.
Mr Berlusconi's resignation was set in motion after the Chamber of Deputies, with a vote today of 380-26 with two abstentions, approved economic reforms which include increasing the retirement age starting in 2026 but do nothing to open up Italy's inflexible labour market.
The Senate approved it a day earlier and Mr Napolitano signed the legislation this afternoon, paving the way for Mr Berlusconi to leave office as he promised to do after losing his parliamentary majority earlier in the week. He chaired his final Cabinet meeting tonight.
Mr 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, hundreds of curiosity-seekers massing to witness the final hours of his government heckled him and his ministers.
"Shame!" and "Get Out!" the crowds yelled, many toting "Bye Bye Silvio Party" posters as they marched through Rome in a festive indication that for many Italians, like financial markets, the time had come for Mr Berlusconi to go.
Berlusconi supporters were also out in force, some singing the national anthem, but they were outnumbered.Reuse content