The decision by the 69-year-old magnate ends three weeks of political wrangling after the closest election defeat in modern Italian history.
It follows two further defeats by the shaky centre-left coalition led by centre-left leader Romano Prodi whose candidates have won the key speaker posts in both houses of parliament.
Prodi and his allies have a workable majority in the lower Chamber of Deputies, but only a two-seat majority in the Senate, and the vote to choose a Senate president was seen as a test of his coalition's ability to remain united.
The coalition ranges from pro-Vatican moderates to Communists, and has already shown signs of fraying.
The outgoing prime minister said he would chair his last cabinet meeting on Tuesday, before handing his resignation to President Carlo Azeglio Ciampi.
Although he is stepping down, Berlusconi isn't admitting defeat.
"From a political point of view he (Prodi) won the consensus," he said.
"But then numbers are different and we comply because we are democratic. But inside ourselves we remain convinced that the majority prize has been wrongly assigned."