Italian Prime Minister Enrico Letta will hand his resignation to President Giorgio Napolitano, who is widely expected to ask Democratic Party (PD) leader Matteo Renzi to form a new government.

Democratic Party leader Matteo Renzi had earlier called for a change of government at a party meeting, saying the country could not go on in "uncertainty".

Speculation has been rife that Renzi wants to take over as prime minister.

He is eight years younger than Letta and was elected leader of the party in December.

Letta said in a statement that his decision followed "the decision taken today by the national leadership of the Democratic Party".

Renzi has previously accused Letta of a lack of action on improving the economy, with unemployment at its highest level in 40 years and the economy shrinking by 9% in seven years.

Correspondents say that although the prime minister has kept a careful lid on public expenditure, he has not been able to carry out much-needed administrative reforms and stimulate economic growth.

The latest political turmoil has so far had little impact on financial markets, in contrast with the volatility seen before the current coalition was formed.

Reuters