Twelve hours after polling stations closed, Mr Prodi declared that his coalition had secured a majority in both houses of parliament and promised to unify Italy after a highly divisive and acrimonious election campaign.
But centre-right politicians said the vote remains too close to call, with up to half a million ballots reportedly spoilt and counting for the upper house Senate not yet finished.
Interior ministry figure have put the official results at 49.8 percent for Mr Prodi's centre-left coalition and 49.7 percent for the ruling centre-right coalition of Mr Berlusconi.
"We have won," Mr Prodi told flag-waving supporters who had waited until the early hours in a Rome square as the count ebbed and flowed in the closest election in modern Italian history.
"Today, we have turned a page," Mr Prodi told the cheering crowd.
"We will always be united. We will govern for five years," he said.
But his claim has been contested.
"This is intolerable. What is this? A coup? It reminds me of South America. Auto proclamation (of victory) is constitutionally illegitimate," said Industry Minister Claudio Scajola, a member of Mr Berlusconi's Forza Italia (Go Italy) party.
Close results
The winning coalition will automatically be awarded 55 percent of the lower house seats -- 340 of a total 630 seats -- under a new electoral law, with the runners-up getting around 277 seats.
Mr Prodi's winning margin is said to be around 25,224 votes, just a tiny fraction of Italy's 47 million registered voters.
A re-evaluation of spoilt ballots could unleash political chaos in Italy, mirroring the 2000 US presidential election which went to a bitter recount in Florida.
Italians went to the polls on Sunday and Monday.
Mr Berlusconi's coalition currently has a lead of one seat in the Senate, with six seats voted for by expatriates still to be declared.
The centre-left Union said it believes it will win four of those seats, giving it an overall majority.
The lower and upper houses have equal power in Italy's electoral system. One bloc must win both to prevent parliamentary stalemate.
Split parliament
The tight election race has raised the spectre of a split parliament or a complete stalemate with the lower house going to one coalition and the upper house to the other.
The lower house Chamber of Deputies and the upper house Senate have equal powers and as such no side can claim victory unless it has a majority in both houses.
Prior to the polls, Mr Berlusconi warned that a split parliament would be a “disaster."
In the lead up to the ballot, opinion polls had placed Mr Prodi as clear favourite for the position of Italian prime minister.
Interior Minister Giuseppe Pisanu announced that voter turnout was 83.6 percent.
Mr Berlusconi has been in office since 2001 and has led Italy's longest-serving government since World War Two.