The centre-right People of Freedom party, which is headed by Silvio Berlusconi, walked out on a Senate confidence vote on the new measures.
The move could herald a new crisis in Italian politics and force a sooner-than-expected election.
Bond prices weakened on the news and international markets remain nervous of a post-Monti Italy.
But the final election date rests with President Giorgio Napolitano. He moved quickly to dismiss notions that any political tensions should create alarm about the institutional strength of the country.
The centre-left Democratic Party could ask Napolitano to dissolve parliament if they felt Monti could not count on Berlusconi's support.
But Berlusconi has signalled strongly in recent TV interviews that he could attempt a fifth term as prime minister.
Monti's fractious government looks set for even more months of political wrangling.
Source: Euronews
