Monti, stripped of Berlusconi's support, offers his resignation

Italian PM will stay in office only until austerity budget is passed

Italy's Prime Minister, Mario Monti, has told the country's president that he intends to resign in the wake of Silvio Berlusconi withdrawing his support for the year-old government of technocrats. Mr Monti intends to quit as soon as parliament passes critical budget legislation.

President Giorgio Napolitano's office announced Mr Monti's plan after a meeting that lasted nearly two hours with Mr Monti last night at the presidential palace in Rome. Earlier in the afternoon, the billionaire media baron Silvio Berlusconi, who resigned in disgrace with Italy tottering through the European debt crisis, announced he was making a comeback and running for a fourth term as prime minister.

Mr Berlusconi, 76, reluctantly stepped down last year after pressure from international financial markets. He was later convicted of tax fraud and is on trial in Milan for alleged sexual misconduct and abuse of power.

An unelected government of technocrats, led by the widely respected economist Mario Monti, was appointed to replace him. Mr Monti will quickly consult with political leaders to see if they can pull together to pass a budget and financial stability law deemed critical to healing Italy's finances. Once he does that, Mr Monti will "hand in his irrevocable resignation in the hands of the president", the presidential palace said. The palace communiqué quoted Mr Monti as concluding that Mr Berlusconi's conservative Freedom People Party essentially had made a "judgement of categorical non-confidence on the government" and its strategy.

Opinion polls show the popularity of Mr Berlusconi's Freedom People Party has plunged to far below that of Italy's other political force, the centre-left Democratic Party. But Mr Berlusconi is confident he can be victorious. "I'm running to win," he told reporters outside the training facilities of his football team, AC Milan.

One of Mr Monti's biggest backers in Parliament, the centrist leader Pier Ferdinando Casini, bemoaned Mr Berlusconi's potential return to office. "It has been a year that Italians are seriously sacrificing to try to avoid Greece's abyss, and, today, there's the re-emergence of Berlusconi, who wants to bring us back five years," he said on state television.

Since Mr Monti took office, the retirement age for Italy's generous pensions has been raised, sales taxes have been hiked, and a property tax on primary residences – abolished by Mr Berlusconi to fulfil one of his own campaign promises – has been reinstated. But while opinion polls of prospective voters show support for Mr Berlusconi's party slumping to under 15 per cent, the media mogul might be betting on public impatience with those sacrifices.

Before Mr Monti's announcement, no date had been set for elections, which had been linked to the end of the parliament's term in late April. But Mr Berlusconi's decision a few days ago to withdraw the support of his party – parliament's largest – for Mr Monti's anti-crisis government increased the likelihood that Italy's president would dissolve the legislature weeks early and hold elections ahead of schedule. "It seems to me that 10 March has been indicated," said Mr Berlusconi, "and that seems a date that's fine with me."

When pressure from international financial markets forced Mr Berlusconi to resign in November 2011, at the height of sovereign debt worries, many pundits dismissed any prospects of a comeback for the combative businessman-turned-politician. He has led Italy's conservatives for nearly 20 years. He stepped down 18 months before the end of his third stint as prime minister. Since then, he has been convicted of tax fraud but he is appealing and, in Italy, convictions don't become definitive until two levels of appeals have been exhausted.

Mr Berlusconi is also on trial in Milan for allegedly having sex with an underage prostitute and using his position to try to cover it up, charges he has denied. The young woman has also denied having sex with the then prime minister.

Mr Berlusconi, whose convictions in previous trials on charges linked to his media empire's dealings have either been overturned or thrown out when the statute of limitations expired, claims he is the victim of prosecutors who, he contends, sympathise with the left.

Financial markets have been rattled over the prospect that Mr Monti might end his tenure prematurely. But, until last night, he insisted that the political crisis was "manageable". Standard & Poor's rating agency on Friday indicated it could lower Italy's rating if the recession endures well into 2013, and it cited "uncertainty" that the next Italian government could stay the course of austerity.