The election of Mr Napolitano, an ex-communist and Mr Prodi's candidate, was bitterly opposed by outgoing Prime Minister Silvio Berlusconi's conservatives, who voted with blank ballots in protest against a candidate they saw as too left wing.
But the elevation of Mr Napolitano to the role now clears the way for Mr Prodi to form a government early next week, more than a month after winning a bitterly contested general election.
The parliamentary stalemate had delayed Mr Prodi's accession to power, since his government has to be sworn in by the new president.
Fourth time lucky
Mr Napolitano, a senator for life and former parliament speaker, was elected on the fourth count, the first to be decided by absolute majority, after he received 543 votes, 38 more than he needed.
The previous three rounds ended in stalemates, as Mr Prodi's coalition could not reach the required two-thirds majority of the "Grand Electors" convened in the lower house of parliament.
The incoming president, the country’s 11th, received a two-minute ovation from parliament when lower house speaker formally declared him elected.
But not everybody was pleased, Mr Berlusconi voicing his opposition by telling reporters immediately after the vote, "This majority does not correspond to the wishes of Italians. We don't see him as corresponding to the need for an impartial candidate," he said, adding that he wished the new president good luck.
Though closely associated with Mr Prodi, he was interior minister in his first government in 1996, when questioned Mr Napolitano, who turns 81 next month, insisted that he would be an "impartial" president, "Otherwise I wouldn't have accepted," he said.
Setting up government
The election will prompt outgoing President Carlo Azeglio Ciampi to step down next Monday, three days before the expiry of his mandate, with his successor taking the oath of office before a joint sitting of both houses the same day.
The five-day gap between Mr Napolitano’s election and his swearing in appears to be linked to Mr Prodi not having finalised his government line-up, as he seeks to share out high-profile cabinet posts across his disparate centre-left coalition.
The day after being sworn in, the new president is expected to begin the requisite cross-party consultations, a constitutional step which will require at least one day, possibly two.
Mr Prodi is most likely to be asked to form a government on May 17, which will in turn be followed by a vote of confidence in his new government by both houses of parliament.