Italy's president has formally asked economist Carlo Cottarelli to try to form a government after quashing the hopes of the eurosceptic 5-Star Movement and the League to form Western Europe's first populist government.
President Sergio Mattarella turned to the former International Monetary Fund official to run a technocratic government until an early election can be held.
Mr Mattarella's office announced the president had given a mandate to Mr Cottarelli to try to form a government after about an hour of consultations on Monday.
Mr Mattarella enraged the 5-Stars and League by vetoing their choice for economy minister on Sunday night, throwing Italy into a new round of political uncertainty more than two months after an election created a hung parliament.
In a televised address, Mr Mattarella said he had rejected 81-year-old eurosceptic economist Paolo Savona, because he had threatened to pull Italy out of the eurozone.
Markets rallied on the news that Italy's economy, the euro zone's third-biggest, would not be guided by a government hostile to the single currency.
"The uncertainty over our position has alarmed investors and savers both in Italy and abroad," Mr Mattarella said, adding: "Membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion."
Financial markets tumbled last week on fears the coalition being discussed - a marriage of the far-right League and the populist 5-Star Movement - would unleash a spending splurge and dangerously ramp up Italy's already huge debt, which is equivalent to more than 1.3 times the nation's domestic output.
Carlo Cottarelli. Source: Getty Images Europe
After the coalition's collapse, Italian bonds, stocks and the euro rallied.
The League and 5-Star, which had spent days drawing up a coalition pact aimed at ending a stalemate following an inconclusive March vote, responded with fury to Mattarella, accusing him of abusing his office.
5-Star leader Luigi Di Maio called on parliament to impeach the mild-mannered Mr Mattarella, while League chief Matteo Salvini threatened mass protests unless snap elections were called.
While he had approved all their other ministerial picks, Mr Mattarella said he had the right to block nominations that could harm the country.
Shortly afterwards, the president's office summoned Mr Cottarelli, the IMF's former director of fiscal affairs, for a meeting on Monday. Such a call is usually a prelude to being offered a mandate to form a government.
If, as expected, Mr Cottarelli fails to win parliamentary backing, he would simply ferry Italy to elections that would most likely be held in September or October.
The League, which won 17 per cent of the vote in March, would surge in any early ballot, polls show, while support for 5-Star remained strong, above 30 per cent.
Mainstream centre-left and centre-right parties were seen losing further ground in the face of voter anger over the sluggish economy, high unemployment and rising poverty.
The 5-Star's Di Maio demanded the impeachment of Mr Mattarella under article 90 of the constitution where parliament can seek to remove a president if a simple majority of lawmakers votes in favour. The constitutional court would then be called to decide whether to enforce the decision.
Salvini rejected the impeachment call and it was denounced by the centre-right Forza Italia party and the centre-left Democratic Party (PD) both denounced calls for impeachment.
