Giorgio Napolitano, the Italian President, has accepted his resignation but has asked Monti to stay on as a head of a caretaker government until new elections in a couple of months.
His resignation comes as MPs passed the 2013 budget drawn up by his government with 309 votes in favor and 55 against.
Monti is widely credited with overseeing a recovery in Italy's bonds and repairing the country's tattered image abroad. His leadership has also been praised by Angela Merkel and other European leaders such as Jean-Claude Juncker, head of the group of euro area finance ministers.
When Monti took over, Italy's borrowing was approaching unaffordable levels. He introduced pension reform and raised the retirement age to 66 for men and 62 for women. He also did away with a system of seniority pensions, which allowed many civil servants to retire at 58.
Most importantly though was under Monti yields on Italian 10-year bonds fell to under 7%, now they are between 4 and 5%. Bonds are a key indicator of how much a country has to pay to borrow money and at over 7%, which they were before Berlusconi stepped down, they are unaffordable. However, Monti is unpopular with many Italians dealing with soaring unemployment, a shrinking economy and higher taxes. A poll conducted on November 17th showed that 62% of Italians had a negative view of Monti's government while 82% said they had little confidence in the economy improving.
Mr Monti has fiercely defended his program of tighter budgetary discipline. He told workers at a Fiat factory on Thursday that it would be "irresponsible to waste all the sacrifices that Italians had made".
Monti had originally been expected to stay in power until April 2013 but once Berlusconi's PDL party - the biggest in the coalition government - withdrew their support, he said he would step down once the budget had been passed.
The technocrat is expected to announce his political plans at a press conference on December 23rd. He may announce whether he will join a group of centrist political parties who want him to run on a continued platform of economic reforms for the Eurozone's third biggest economy.
"Although Mr Monti has not yet thrown his hat into the ring, he has given plenty of indicators that he is preparing to run for office as head of a centrist alliance," Nicholas Spiro, managing director of Spiro Sovereign Strategy, told Bloomberg.
The former European commissioner cannot stand for election himself but he could return as a minister or as an unofficial leader of a centrist coalition.
Mr Berlusconi's conservative People of Freedom Party (PDL) withdrew its support for Monti's cabinet earlier this month. Berlusconi has said he'd step aside and endorse Monti if he led a coalition with the PDL but not the Democratic Party.
A date has not yet been set for the ballot, but most analysts believe it will be on the 24th February.
Most polls indicate that the Democratic Party would win about 30% of the vote, while Berlusconi's PDL is trailing in third with between 15 and 20%. A protest group led by former comedian Beppe Grillo is in second place with 20%.
Berlusconi was dogged by political scandal before his resignation in November last year, including allegations of fraud and paying for sex with a minor. Both cases against him are still ongoing. However, it was the scale of the financial crisis threatening Italy, which finally forced his resignation.