Italian Prime Minister Mario Draghi resigned on Thursday after efforts to bring the country's fractious parties to heel failed, kicking off a snap election campaign which could bring the hard right to power.

The internationally respected 74-year-old formally handed his resignation to President Sergio Mattarella, whose role it is to now guide the country out of the crisis.

Mattarella is likely to dissolve parliament and call early elections for September or October, according to political analysts. Draghi may stay on as head of the government until then.

"Italy betrayed", the Repubblica daily frontpage cried, while the Stampa ran with "For Shame".

Based on current polls, a rightist alliance led by Giorgia Meloni's post-fascist Brothers of Italy party would comfortably win a snap election.

Draghi, a former head of the European Central Bank, was parachuted into the premiership in 2021 as Italy wrestled with a pandemic and ailing economy.

On Wednesday, he had attempted to save the government, urging his squabbling coalition to put aside their grievances for the sake of the country.

"Are you ready?" he asked the Senate four times. Now was not the time for uncertainty, amid a myriad of challenges, from a struggling economy and soaring inflation to the Ukraine war, he said.

Three parties – Silvio Berlusconi's centre-right Forza Italia, Matteo Salvini's anti-immigrant League and populist Five Star Movement – decided they were not. They opted to sit out the vote, saying it was no longer possible for them to work together.

The crisis was sparked when Five Star snubbed a key vote last week, despite warnings from Draghi that it would fatally undermine the coalition.

His downfall comes in spite of recent polls suggesting most Italians wanted Draghi to stay at the helm until the scheduled general election next May.

The Brothers of Italy party, which has neo-fascist roots, is flying high in the polls – but it would need the support of Forza Italia and the League – and the three parties often clash.

Should it win, such a coalition "would offer a much more disruptive scenario for Italy and the EU" than Draghi's national unity government, wrote Luigi Scazzieri, senior research fellow at the Centre for European Reform.

Research consultancy Capital Economics said, however, there were "powerful fiscal and monetary incentives" for the next government to implement the reforms demanded by the European Union, or risk missing out on post-pandemic recovery funds worth billions of euros. (AFP)