Events came to an explosive head on Sunday when President Sergio Mattarella rejected the populist parties' call for Paola Savona to be appointed as economic minister.
However, with tensions running high and some political leaders pushing for quick elections, events in Italy remained extremely fluid.Over the weekend, Mr. Mattarella rejected a euroskeptic figure the 5 Star and the League had chosen as economy minister for a coalition government that appeared close to taking power.
His statement followed a short meeting with President Sergio Mattarella to discuss his progress, as the country tries to form an interim government following an inconclusive election in March.
He went to meet Mr Mattarella to put forward choices for his cabinet but the president vetoed Paolo Savona as finance minister, citing his fierce opposition to membership of the eurozone.
President mattarella said he could not appoint the eurosceptic paolo savona to the post, citing concern from investors at home and overseas, and tasked prime minister cottarelli with forming a government instead.
In response, the 5 Star Movement chief Luigi di Maio announced that the party will launch within Parliament a move to oust Mattarella for having impeded the formation of the government by vetoing Savona and refusing to sign the list of ministers presented by the coalition.
Carlo Cottarelli became known as "Mr Scissors" for his cuts to public spending in Italy.
"Dialogue with the European Union to defend our interests is essential and we can do better but it has to be constructive".
"It is hard because. the people who want to sort out problems affecting everyday citizens have their hands tied by stronger political forces", said retired Rome resident Mauro Ciarpagnini, adding that the President should not have rejected Mr Savona.
"What a bad day for Italy and for democracy", Salvini said in a Facebook post on Sunday, following Mattarella's decision to veto Paolo Savona's nomination for the post of economy minister.
His appointment comes days after efforts by the Five Star and the League to form a coalition government collapsed.
Mr Di Maio said: 'There are two paths ahead: either we launch the Conte government with a reasonable solution or we vote right away'.
It is on this basis that Di Maio has raised the possibility of impeaching Mattarella for treason - something that would require an absolute majority in both chambers of parliament in a joint session. "I would like to know what Berlusconi does", he said. Investors are anxious that euroskeptic parties could form a future government that would abandon the euro, or commit to public spending that would see Italy become the next Greece.
While he had approved all their other ministerial picks, Mattarella said he had the right to block nominations that could harm the country.
Marine Le Pen, the French National Front leader, said Mr Mattarella's decision amounted to a "coup d'etat" while Steve Bannon, Donald Trump's former strategist, called the last 48 hours of political events in Italy "disgusting".
Further failure to agree on a prime minister will nearly surely result in another national election soon.
The FTSE 100 edged up 0.12 per cent in morning trading, while the FTSE 250 was up 0.14 per cent. Germany's Dax rose 0.3 per cent.