Berlusconi announced his resignation in the evening after the lower house of Parliament passed economic policies demanded by the European Union, The New York Times reported. The Senate approved the measures Friday.
President Giorgio Napolitano is to select a new prime minister to steer the country through a transition period.
"All political forces must act with a sense of responsibility," Napolitano said.
Herman Van Rompuy, president of the European Commission, met with Napolitano in Rome Friday and urged him not to call an early election, saying that would distract the government from restoring market confidence in the country, Italy's ANSA news agency said.
The austerity measures are designed to rein in government spending and increase revenues. They include a hike in fuel taxes, a 1 percent increase in the national sales tax, sale of state assets and a graduated increase in women's retirement pension age from 60 to 65.
Berlusconi's replacement is expected to be former EU Commissioner for Competitiveness Mario Monti, ANSA said.