Italian Prime Minister Enrico Letta has submitted his resignation after his Democratic Party backed a call for a new administration.
Party leader Matteo Renzi, 39, had argued that a change of government was needed to end "uncertainty".
Mr Renzi, who was elected party leader in December, appears poised to be nominated for prime minister.
The announcement has had no impact on financial markets, in contrast with the volatility seen before.
Before heading to President Giorgio Napolitano to resign, Mr Letta thanked everyone who had helped him during the past 10 months as prime minister.
Mr Renzi said a new government should take over until the end of the current parliamentary term in 2018.
He accused Mr Letta of a lack of action on improving the economy, with unemployment at its highest level in 40 years and the economy shrinking by 9% in seven years.
The Italian prime minister failed to implement promised reforms of an often corrupt and wasteful bureaucracy coupled with a bloated parliament, says the BBC's David Willey in Rome.
Youth unemployment has worsened and Italians have grown increasingly impatient of the slow pace of reform and the continuing decline of families' income and living standards.
Above all Mr Letta failed to force through a bill that was to change an election law brought in under former Prime Minister Silvio Berlusconi, our correspondent says.
Mr Letta, 47, formed a coalition with the centre-right last year.
Angelino Alfano, leader of a centre-right faction that has been part of Mr Letta's government, gave a guarded welcome to Mr Renzi's plans.
There was no guarantee that an attempt to form a new government under Mr Renzi would work, Mr Alfano said, adding he would not support a new administration whose policies were too left-wing.
There is also no guarantee that he is going to succeed in convincing experienced old political hands that he has the capacity to lead, says our correspondent.