The League and the Five Star abandoned their plans to form a coalition government
Italy was hurtling to new elections within months on Monday as the country is mired in political chaos after a bid by two populist parties to form a government collapsed.
The latest crisis was sparked when President Sergio Mattarella vetoed the nomination of fierce eurosceptic Paolo Savona as economy minister in a coalition of the far-right League and anti-establishment Five Star Movement.
His action on Sunday - which came after months of political turmoil in the wake of an inconclusive March election - sparked angry calls for his impeachment.
On Monday, Mattarella chose Carlo Cottarelli, an economist formerly with the International Monetary Fund, to form a caretaker government to take Italy into new elections.
Cottarelli said that should his technocrat government win parliamentary approval, it would stay in place until elections at the start of 2019.
But if parliament fails to approve his government, a new election would be held "after August" - the most likely outcome given only the centre-left Democratic party has announced that it would vote in favour.
The League and the Five Star abandoned their plans to form a coalition government after the president's veto of Savona, and their approved nominee for prime minister, lawyer and political novice Giuseppe Conte, stepped aside.
Mattarella, 76, said he had accepted every proposed minister except Savona, who has called the euro a "German cage" and has said that Italy needs a plan to leave the single currency "if necessary."
The leaders of Five Star and the League, Luigi Di Maio and Matteo Salvini, furiously denounced the veto, decrying what they called meddling by Germany, debt ratings agencies and financial lobbies.
Cottarelli, 64, was director of the IMF's fiscal affairs department from 2008 to 2013 and became known as "Mr Scissors" for making cuts to public spending in Italy.
He will struggle to win parliament's approval with Five Star and the League commanding a majority in both houses.
"They've replaced a government with a majority with one that won't obtain one," said Di Maio, calling for the president to be impeached.
"I hope that we can give the floor to Italians as soon as possible, but first we need to clear things up. First the impeachment of Mattarella... then to the polls."
Salvini, a fellow eurosceptic who was Savona's biggest advocate, declared that Italy was not a "colony," and "we won't have Germany tell us what to do."
On Monday, Salvini threatened to break his alliance with the League's pre-election rightwing coalition partner Silvio Berlusconi should the media mogul's Forza Italia party vote for the caretaker government.
The 81-year-old billionaire former prime minister released a statement Sunday in which he praised Mattarella's efforts to "safeguard this country's families and businesses."
His partnership with Salvini as part of a grouping that won the most votes in March, is still in place despite the League's attempt to form a government with Five Star, as Forza Italia and the League hold local and regional administrations together.
"Berlusconi's statement yesterday was the same sort of thing that could have been written by (former centre-left prime minister Matteo) Renzi," Salvini told Radio Capitale.
French far-right leader Marine Le Pen joined in their outrage, accusing the president of a "coup d'etat" and saying the "European Union and financial markets are again confiscating democracy."