Italian political parties will no longer be funded by the state and their accounts will be externally audited, under plans announced on Friday.
The new system would avoid "the scandals of recent years", Prime Minister Enrico Letta said.
Taxpayers will now be able to choose whether to fund a party.
However, Beppe Grillo, leader of the anti-establishment Five Star Movement, called on Mr Letta's party to return the state funds it has received.
Mr Letta said that the decree issued on Friday would fulfil an election pledge of his to abolish state funding for parties by the end of the year.
However, Mr Grillo called the move a "joke", writing on his blog: "In order to give up public money, it is sufficient to simply not take it, as the Five Star Movement has done."
Under the new system, Italians will now have the option of earmarking 0.2% of their annual income tax to the party of their choice.
If they choose not to to fund a party, the money will go to the state.