Italian Prime Minister Silvio Berlusconi lost his parliamentary majority on Tuesday after his reform-shy government's borrowing costs soared into the euro zone's danger zone with investors fearing a new, bigger Greece.

Berlusconi won a crunch parliamentary vote on budget policy because the centre-left opposition abstained. But he secured only 308 votes in the 630-seat chamber of deputies, indicating he no longer had a majority.

"I ask you, Mr Prime Minister, with all my strength, to finally take account of the situation ... and resign," opposition Democratic Party leader Pier Luigi Bersani said.

Stock markets across Europe rose on the news, showing investors regard the departure of the 75-year-old billionaire media magnate, beset by corruption trials and sex scandals, as a precondition for saving Italy's public finances.

Berlusconi's closest coalition ally, Umberto Bossi, head of the populist Northern League, had earlier urged him to resign in what could be a mortal blow, saying he should make way for Angelino Alfano, secretary of the premier's PDL party.

Italy has displaced Greece as the epicentre of the euro zone's sovereign debt crisis, with government bond yields nearing unsustainable levels that could force the bloc's third largest economy to seek a bailout that Europe cannot afford.

Italian 10-year bond yields touched a new record of 6.71 percent on Tuesday, raising the risk that Rome's massive debt - the second highest in Europe at 120 percent of gross domestic product - could spiral out of control.

"Now we are really reaching very dangerous levels ... We are above yield levels in the 10-year where Portugal and Greece and Ireland issued their last bonds," said Alessandro Giansanti, a rate strategist at ING.

In Greece, the ruling Socialists and the conservative opposition were putting finishing touches to a national unity government expected to be headed by former European Central Bank vice-president Lucas Papapdemos, a socialist source said.

Prime Minister George Papandreou, who was forced to request the euro zone's first EU/IMF bailout after discovering on taking office two years ago that the true scale of the deficit had been concealed, asked ministers to prepare resignation letters to submit to the president.

"Negotiations are being finalised with Papademos as PM," a socialist party source with knowledge of the talks told Reuters.

Papandreou, son and grandson of prime ministers, said farewell to his cabinet at the meeting, a participant said.