Italian Prime Minister Mario Draghi went to see President Sergio Mattarella on Thursday and was expected to resign after three coalition parties withdrew their support for his government.

His resignation would almost certainly open the way for early elections in October.

Italy's government crumbled on Wednesday when three of Draghi's main partners snubbed a confidence vote he had called to try to end divisions and renew their fractious alliance.

"In the light of the vote taken by the Senate last night ... I am on my way to the president of the republic to inform him of my intentions," Draghi told the lower house of parliament, where he received lengthy applause from lawmakers.

A Reuters photographer saw him enter the president's palace shortly afterwards.

The political crisis has up-ended months of stability in Italy, during which the respected former central banker Draghi had helped shape Europe's tough response to Russia's invasion of Ukraine and had boosted the country's standing in financial markets.

Italian bond and stocks sold off sharply on Thursday just as markets were bracing for the first interest rate hike from the European Central Bank since 2011.

In early trade, benchmark 10-year Italian bonds yields soared over 20 basis points to their highest in over three weeks and Italian stocks opened down 1.8%.

COALITION FRACTURES

Draghi had already tendered his resignation last week after one of his partners, the populist 5-Star Movement, failed to back him in a confidence vote on measures tackling the high cost of living.

Mattarella rejected the resignation and told him to go before parliament to see if he could keep the broad coalition going until the planned end of the legislature in early 2023.

In a speech to the Senate, Draghi made a plea for unity and set out a series of issues facing Italy ranging from the war in Ukraine to social inequality and rising prices.

But the 5-Star once again decided not to back him, saying he had not addressed their core concerns.

In addition, the rightist Forza Italia and League parties decided to shun the vote, saying they wanted a commitment that Draghi was willing to forge a new administration without 5-Star and with fresh policy priorities.

Draghi would likely remain in a caretaker capacity if the president calls an election. Polls say the conservative bloc, including the far-right Brothers of Italy party, would likely win a ballot.