Mattarella dissolves parliament after Draghi resigns.

Italy will hold a snap national election on 25 September following the resignation of prime minister Mario Draghi after three coalition parties withdrew their support from his national unity government.

President Sergio Mattarella dissolved parliament on Thursday, with Draghi to stay on in caretaker capacity until the country goes to the polls on the last day in September.

Mattarella said the "last resort" decision was inevitable, calling on parties to act with responsibility and stressing that the early elections come at a very sensitive time for Italy and Europe.

Draghi had already sought to resign last week after the populist MoVimento 5 Stelle (M5S), led by former premier Giuseppe Conte, failed to back a €26 billion cost-of-living package amid claims that the party's proposals were being ignored.

However Mattarella refused to accept Draghi's resignation and instead tasked the premier with trying to avert the political crisis.

Draghi appealed to lawmakers to rebuild "a new pact of trust", however the right-wing Lega and centre-right Forza Italia said they were unwilling to support a government with the M5S.

On Wednesday the Lega, led by Matteo Salvini, and the Forza Italia party of former premier Silvio Berlusconi, joined the M5S in abstaining from a crucial vote in Draghi's national unity government.

This led the former European Central Bank chief to offer his resignation again to Mattarella who this time accepted it.

The departure of Draghi, 74, comes as Italy prepares to receive around €200 billion in EU aid, amid rising inflation and an energy crisis driven by Russia's war in Ukraine.

Draghi's cross-party coalition, formed after the collapse of Conte's second executive, had the support of all major parties in parliament with the exception of the right-wing Fratelli d'Italia (FdI) which is leading in opinion polls.

Analysts predict that a rightist alliance led by Giorgia Meloni's FdI, together with the Lega and Forza Italia, is poised to win the upcoming election.