The far-right League and the anti-establishment Five Star Movement have yet to form government since scoring the most votes in Italy's inconclusive elections nearly three months ago.
Italy's new prime minister-designate Carlo Cottarelli said he would hold an election by the start of 2019 at the latest after being given the mandate to form a government by President Sergio Mattarella.
"I will come to parliament with a programme that, if I win the vote of confidence, will include a vote on the 2019 budget. Then parliament will be dissolved, with elections at the start of 2019," Cottarelli told reporters after meeting Mattarella.
But he added that if, as is likely, his government is not approved by parliament, new elections will be held "after August".
It comes after Giuseppe Conte gave up his bid to form a government following the collapse of talks with the president over including a eurosceptic economy minister in his cabinet.
Conte, 53, a lawyer and political novice, picked for prime minister by the anti-establishment Five Star Movement and far-right League seeking to create a coalition government, was given the green light to form his cabinet on Wednesday, but he still had to present a list of ministers that the head of state would agreed to before his government could seek approval in parliament.
"I have given up my mandate to form the government of change," said Conte to reporters after leaving failed talks with President Sergio Mattarella.
Conte's decision to step aside leaves Italy in a political crisis nearly three months after March's inconclusive general election.
Following the collapsed talks, Mattarella summoned Carlo Cottarelli, former director of the International Monetary Fund's fiscal affairs department, for talks on Monday, with a temporary technical government now looking inevitable as Italy faces the strong possibility of new elections in the autumn.
Cottarelli, 64, worked at the International Monetary Fund from 2008 to 2013 and became known as "Mr Scissors" for making cuts to public spending in Italy.
Savona choice sinks deal
Mattarella confirmed that the nomination by the Five Star Movement and the League of Paolo Savona for economy minister saw the end of Conte's brief mandate.
In his latest book, "Like a Nightmare and a Dream", 81-year-old Savona calls the euro a "German cage" and says that Italy needs a plan to leave the single currency "if necessary".
"I accepted every proposed minister apart from the minister of the economy," Mattarella told reporters.
A former judge of Italy's constitutional court, Mattarella has refused to bow to what he saw as "diktats" from the two parties which he considered contrary to the country's interests.
He had watched for weeks as Five Star and the League set about trying to strike an alliance that would give Italy's hung parliament a majority.
The president said that he has done "everything possible" to aid the formation of a government, but that an openly eurosceptic economy minister ran against the parties' joint programme promise to simply "change Europe for the better from an Italian point of view".
"I asked for the (economy) ministry an authoritative person from the parliamentary majority who is consistent with the government programme... who isn't seen as a supporter of a line that could probably, or even inevitably, provoke Italy's exit from the euro," he added.
Mattarella said Conte refused to support "any other solution" and then, faced with the president's refusal to approve the choice of Savona, gave up his mandate to be prime minister.
The leaders of Five Star and the League, Luigi Di Maio and Matteo Salvini, were infuriated by Mattarella's refusal to accept Savona, a respected financier and economist.
"Why don't we just say that in this country it's pointless that we vote, as the ratings agencies, financial lobbies decide the governments," a livid Di Maio said in a video on Facebook.
"When the people give more than 51 percent of consensus to political forces that want to represent the interests of the Italian people, they find a way to block everything. It's unacceptable."
Salvini, who was Savona's biggest advocate and a fellow eurosceptic, said on Sunday that Italy wasn't a "colony", and that "we won't have Germany tell us what to do".
He told supporters: "Either we can work to give a future to this country and to our children, or else, in a democracy, if we are still in a democracy, there is only one thing to do: give the floor to the Italians."