Italian Prime Minister Enrico Letta has said he will resign on Friday after his Democratic Party backed a call for a new administration.
Party leader Matteo Renzi had earlier called for a change of government at a party meeting, saying the country could not go on in "uncertainty".
Speculation has been rife that Mr Renzi wants to take over as prime minister.
He is eight years younger than Mr Letta and was elected leader of the party in December.
Mr Letta said in a statement that his decision followed "the decision taken today by the national leadership of the Democratic Party".
He said he would formally submit his resignation to President Giorgio Napolitano at the presidential palace on Friday.
Relations between Mr Letta and Mr Renzi had become increasingly fraught, the BBC's Alan Johnston reports from Rome.
The Democratic Party now hopes that Mr Renzi will be able to replace him, and form a new administration, our correspondent adds.
Mr Renzi has previously 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.
Correspondents say that although the prime minister has kept a careful lid on public expenditure, he has not been able to carry out much-needed administrative reforms and stimulate economic growth.
The latest political turmoil has so far had little impact on financial markets, in contrast with the volatility seen before the current coalition was formed.
Mr Letta did not attend Thursday's party meeting, which had been brought forward from next week.
At the meeting, Mr Renzi thanked Mr Letta for his "remarkable work" but said the country could not go on in "uncertainty".
He said his proposal - a new government to take over until the end of the current parliamentary term in 2018 - was a way out of the "morass".
Mr Letta, 47, formed a coalition with the centre-right last year but there had been mounting speculation over his future after Mr Renzi was elected party leader in December.
After Mr Letta announced his intention to resign, 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, saying he would not support a new administration whose policies were too left-wing.
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