Italy braced for market reactions on Monday as Prime Minister Enrico Letta battled to save his coalition from collapse after Silvio Berlusconi said he was pulling his party's ministers out of the cabinet.

Letta, a moderate leftist who came to power this year and has struggled to boost a flagging economy, will go to parliament on Wednesday for a confidence vote that could show up rifts in Berlusconi's ranks.

Letta said in a television interview on Sunday that he would resign if he does not win the vote, adding: "I don't intend to govern at all costs."

While avoiding a direct call on Berlusconi's party to rebel against its leader, Letta said it should heed its electorate's desire for stability.

The 47-year-old said he did not want support "for three days only to start over again, but to go ahead and pursue our agenda."

The outgoing ministers, while toeing the party line, have tried to distance themselves from Berlusconi, a former prime minister and billionaire tycoon.

One of the five, Interior Minister Angelino Alfano, said he would be "pro-Berlusconi in a different way". Another, Transport Minister Maurizio Lupi, said: "We want to stand behind Berlusconi but not with his poor advisers".

One possible scenario is that Letta's government could limp on -- either in its current form or following a reshuffle -- with support from Berlusconi rebels and breakaway members of the anti-establishment Five Star Movement.

But Berlusconi warned his supporters against turning into "traitors" in an interview, saying: "I do not believe in some little government made up of transfers."

The 77-year-old tycoon, who has dominated Italian politics for much of the last two decades, has said early elections are "the only way" out of the crisis.

'We will win' snap polls: Berlusconi

Berlusconi's ministerial move on Saturday has been widely condemned, coming at a particularly sensitive time for Italy on the markets and just as the economy was trying to shake off a two-year recession.

Letta called Berlusconi's act "crazy and irresponsible" and said the justification used -- failure by the cabinet to stop a planned hike in VAT sales tax to 22 percent this week -- was a smokescreen for Berlusconi's own interests.

The crisis comes after weeks of brinkmanship between left and right following a supreme court ruling on August 1 that handed Berlusconi his first-ever definitive criminal conviction for tax fraud in a long history of legal woes and sex scandals.

Berlusconi now faces expulsion from parliament and a ban from running in the next elections under a new law aimed at cleaning up Italian politics.

He has called for the Senate committee deciding his fate to be recused pending an appeal to the European Court of Human Rights against the law.

The committee is to hold a first vote on Friday on whether to press ahead with the expulsion and a required vote by the entire Senate is expected later in October when a court will also decide whether Berlusconi has to do a year of house arrest or community service as part of the same conviction.

Berlusconi is also appealing convictions for having sex with an underage 17-year-old prostitute and for abuse of office when he was prime minister.

Italian President Giorgio Napolitano has said he will dissolve parliament and call elections only as a last resort since he wants the electoral law changed before any vote.

February elections helped create the current impasse because they failed to produce a clear winner and the electoral law was blamed for the result.

Letta's uneasy coalition was forged by Napolitano after a two-month deadlock between the prime minister's centre-left Democratic Party, which won the vote by a razor-thin margin, and its eternal rival, Berlusconi's People of Freedom party.

Source: AFP