ROME (AFP) - Italian Prime Minister Enrico Letta resigned on Friday in a fast-paced political drama in Rome that paves the way for 39-year-old centre-left leader Matteo Renzi to take his place.

Financial markets cheered as Mr Letta submitted his resignation to President Giorgio Napolitano after just 10 tumultuous months at the head of a fragile coalition with the centre-right in which he struggled with a rampant economic crisis.

Mr Napolitano will now begin consultations with political leaders to pick a nominee to replace Mr Letta, which the presidency said would conclude on Saturday.

Mr Letta was forced to announce his resignation on Thursday after his own Democratic Party overwhelmingly backed a motion by its new leader Renzi calling for a new government.

On Friday, he "submitted the irrevocable resignation of the executive that he presides," the presidency said.

It added that Mr Napolitano would move swiftly to find an "efficient solution" to the political crisis and move on with economic and "urgent" election law reforms.

The outgoing premier smiled as he arrived at the presidential palace and thanked his supporters in a tweet after losing in the showdown with Mr Renzi.

"Thank you to everyone who helped," said Mr Letta, a 47-year-old former Christian-Democrat who had defiantly ruled out resigning and presented his programme of

reforms for 2014 as recently as Wednesday.

The "relay" between Mr Letta and Mr Renzi is unpopular among Italians who would have preferred early elections, according to opinion polls, and there is concern in the party that it could end up strengthening disgraced former prime minister Silvio Berlusconi.

Mr Pippo Civati, a leftist opponent of Mr Renzi within the party, said the ambitious leader was resembling more and more "a character from a roman noir novel".

Analysts said Mr Renzi will have to overcome the shock caused by him engineering Mr Letta's overthrow despite an earlier gentleman's agreement that he would not do so.

But they also said he could quickly win support if he manages to push through important reforms, and investors were broadly supportive with stocks and bond rates

holding stable on the financial markets.

"The reform process will probably get a boost," Italy's UniCredit bank said in a research note, adding however that "the road ahead is not without bumps".

Stocks on Friday jumped up 1.6 per cent as Mr Letta resigned, also thanks to new data showing that the economy grew by 0.1 per cent in the fourth quarter.

The result was the first positive one for gross domestic product in two years after Italy's longest post-war recession ended in the third quarter.

Mr Renzi, who is the mayor of Florence, still faces delicate days ahead before he can finally clinch his goal of becoming the European Union's youngest prime minister and Italy's youngest ever government leader.

The former Boy Scout was cheered in the streets of the historic city as he walked to work in the Palazzo Vecchio town hall and when someone wished him well, he answered: "It's always needed, especially right now."

Deputy Prime Minister Angelino Alfano, leader of the New Centre-Right party, a junior partner in the coalition whose votes will prove critical, has already said his support for Mr Renzi is not a given.

Mr Berlusconi could also score political points in the crisis, despite having been expelled from parliament last year over a criminal conviction for tax fraud and being a defendant in three other court cases.

His Forza Italia party, which is in opposition, has already said the billionaire tycoon will lead its delegation in the consultations with Napolitano.

Whatever the difficulties, analysts say a new Renzi government could be sworn in as early as next week.

Known for his informal style and his catchphrases, Mr Renzi enjoys high ratings in the opinion polls because he is seen as a relative political outsider but his leadership has been criticised as brash and divisive.

Mr Renzi has never been in government or parliament although he has extensive experience in local administration in and around Florence, where he has been praised for lowering taxes and promoting recycling.

His photogenic looks and his taste for retro sunglasses, leather jackets and jeans have earned him the nickname of "Fonzie" - a reference to the smooth character in the classic American sitcom "Happy Days".