Leftist leader Pier Luigi Bersani got the formal go-ahead yesterday to try to form Italy's next government even though his coalition failed to win an overall majority in parliament in elections last month.
"I have asked Bersani to verify whether he has the parliamentary support required to form a new government. He will refer back to me as soon as possible," President Giorgio Napolitano said after two days of consultations with political leaders.
Bersani's centre-left narrowly won the elections but failed to secure a majority in the upper house. Any new government needs a majority in both houses.
The divisions between political parties over how to proceed have revived fears Italy could plunge back into the euro zone crisis, just as a bitter stand-off over a bailout for Cyprus intensifies.
Should Bersani fail, the reins may be handed to a technocratic government similar to the outgoing one of Prime Minister Mario Monti, or a grand coalition between left and right, or some combination of the two but without Bersani.
All parties agree at least that there are urgent economic issues to be dealt with as Italy endures its longest recession in two decades, with many ordinary Italians struggling to make ends meet.
Investors have been watching developments nervously but stocks jumped 1.06 per cent after the announcement of Bersani's meet with Napolitano.
Whatever government is formed, there will probably have to be early elections to resolve the deadlock within months, analysts said.
The prospect is worrying many ordinary Italians.
"Change will not happen if we have to vote again. Change will come if we sit around a table and compare our platforms," said Luigi Amodeo, a librarian on his lunch break in central Rome.
Severio, a doctor, said: "The risk of a new election is at the door. I'm sure the new government will not last. But I do hope it will do something, enact reforms that will help us to overcome this crisis."
In a surprise move on Thursday after talks with Napolitano, Bersani appeared to indicate a willingness to work with rival Silvio Berlusconi's centre-right and suggested his party could back a cabinet led by someone other than himself.
The demand for political stability came not just from Italians "but from Europe, which is anxiously watching us", he said.
Bersani had previously excluded a grand coalition with Berlusconi - a scandal-tainted former prime minister involved in several court cases - and it would prove hugely controversial among leftists. Berlusconi, whose centre-right coalition came a close second in the February vote, has said his party is open to a coalition which would push economic measures that enjoyed broad support.
The left has so far failed to garner support from the M5S, a new protest party that gathered millions of votes from Italians fed up with austerity and the perks enjoyed by politicians.
Praised abroad for his budget discipline and ambitious reforms, Monti has lost support in Italy as the social cost of the crisis has increased.