Italy’s Parliament has been dissolved, President Sergio Mattarella announced on Thursday, meaning elections must be held within 70 days.
The snap poll is expected to take place in September or October and one government source said September 25 — the last Sunday before the deadline expires — has been earmarked as the election date.
Mario Draghi resigned on Thursday, after the broad national coalition government he formed in February 2021 fell apart.
Mr Draghi, a prominent figure on the international stage as the former chief of the European Central Bank, earned plaudits for his calm leadership as Italy dealt with the coronavirus pandemic.
But he has suffered the same fate as many of his predecessors — being brought down by fractious internal politics.
His efforts to bring to heel the country's divided parties failed, starting a snap election campaign that could bring figures on the hard right into power.
Mr Draghi, 74, formally handed his resignation to Mr Mattarella - whose role it is to guide Italy through the latest political storm - but Mr Draghi may stay on to lead the government until then.
Based on current polls, a right-wing alliance led by Giorgia Meloni's post-fascist Brothers of Italy party would win such an election comfortably.
Mr Draghi is the second prime minister in Europe to quit in as many weeks, after Britain's Boris Johnson, who was brought down by a series of scandals and a cost-of-living crisis.
Mr Draghi took office in 2021 as Italy wrestled with the pandemic and an ailing economy.
On Wednesday, he attempted to save his government, urging the squabbling coalition to put aside their grievances for the sake of the country.
Before the confidence vote, he asked the Senate, the upper house of Parliament, four times: "Are you ready?"
It was not the time for uncertainty as Italy faced myriad challenges, from a struggling economy and soaring inflation, to the Ukraine war, he said.
Three parties — former prime minister Silvio Berlusconi's centre-right Forza Italia, former deputy prime minister Matteo Salvini's anti-immigrant League and the populist Five Star Movement — chose to sit out the confidence vote, saying it was no longer possible for them to work together.
The crisis was sparked when Five Star snubbed a vote last week, despite warnings from Mr Draghi that such a move would fatally undermine the coalition.
His downfall comes despite recent polls suggesting most Italians wanted him to remain in office until a general election is held in May next year.
'Super Mario' unable to tame his government
Mr Draghi helped to give Italy a greater role on the international stage, strongly backing Ukraine in its war against Russia despite public opinion being more divided on the issue than in other European countries.
His government also introduced a series of measures to protect the country from the worst effects of the cost-of-living crisis and started to wean Italy off its reliance on imported Russian gas.
But the divisions in his government and his relatively short tenure meant the country was unable to make much progress in reforming an economy that has long underperformed compared to its peers.
He was a linchpin of the Italian Treasury in the turbulent early 1990s, when Italy was forced out of the European exchange rate mechanism, devaluing its lira and leaving the nation at risk of being unable to join the monetary union.
This was when the media came up with the "Super Mario" nickname, which was inspired by his frenetic activity as director general of the Treasury, from organising privatisation projects to helping to draft the Maastricht Treaty that set the ground rules for the euro project.
After leaving Italy to become vice president of Goldman Sachs in London, a role he held between 2002 and 2005, Mr Draghi's reputation as a crisis manager was burnished when he was called back to Rome to revive the fortunes of Italy's central bank, whose governor Antonio Fazio had been forced out by a corruption scandal.
At the Bank of Italy, Mr Draghi's international standing and open, outward-looking approach proved refreshing after Mr Fazio's parochialism and closed-management style, and paved the way for his ascent to the presidency of the ECB from 2011 to 2019.
In 2012, after his famous pledge to do "whatever it takes" to save the euro at the height of the currency bloc's sovereign debt crisis, Mr Draghi became the darling of financial markets and one of Europe's most recognised and powerful figures.
Moving from the hushed halls of Frankfurt's Eurotower to the mayhem of Rome's political arena, Mr Draghi had to switch from talking interest rates with fellow central bankers to negotiating with rabble-rousing politicians such as Mr Salvini.
Mr Draghi initially seemed to have the golden touch, overseeing an economic rebound at home and bringing an element of gravitas that was welcomed by other European leaders.
Things started to turn sour from early in the new year when he missed out on the role of president in a vote of more than 1,000 parliamentarians and regional delegates.
With a national election due in the first half of next year, the disparate parties in his coalition soon began to fight among themselves with an eye on improving their poll standings.
Anxious investors were watching closely as the coalition imploded.
The European Central Bank was due on Thursday to unveil a tool to correct stress in bond markets for indebted eurozone members, such as Italy.
The spread — the difference between 10-year Italian and German treasury bonds — widened to 215 points by market close on Wednesday.
Milan's stock market dropped 2.0 per cent on opening on Thursday.
Supporters of Mr Draghi said a government collapse could worsen societal problems in a period of rampant inflation, delay the budget, threaten EU post-pandemic recovery funds and send jittery markets into a tailspin.
Laurence Boone, France's European Affairs Minister, said Mr Draghi's resignation would lead to a "period of uncertainty" and mark the loss of a "pillar of Europe".
But research consultancy Capital Economics said there were "powerful fiscal and monetary incentives" for the next government to introduce the reforms demanded by the EU, or risk missing out on post-pandemic recovery funds worth billions of euros.