Italy was plunged into crisis when President Sergio Mattarella at the weekend vetoed the nomination of a fierce euro skeptic as economy minister, leading the prime minister-designate to step down and upending a bid by the anti-establishment Five Star Movement and the far-right League to form a government.
Italy searched for a last-minute exit from nearly three months of political turmoil on Wednesday, with its biggest party looking to make a renewed attempt to form a coalition government with the right-wing League, a source said.
Despite the softer tone from 5-Star and hopeful remarks from Cottarelli, a top adviser to Salvini said the League was not prepared to abandon Savona, the sole obstacle to the League and 5-Star winning the president's blessing for a coalition.
But Cottarelli failed to present a cabinet and received no support from any of the major parties.
The prospect of a populist government running Italy had already caused turmoil in financial markets, over fear that the coalition would unleash a spending splurge and increase Italy's massive debt mountain - the equivalent of more than 1.3 times the nation's domestic output.
Italian President Sergio Mattarella vetoed their euroskeptic economy minister, collapsing the deal.
Seema Shah at Principal Global Investors said: "Demand at today's auction was very encouraging, and clearly indicates that investors still have faith in the Italian economy, if not the government".
On Wednesday, premier-designate Cottarelli said in a statement that "new possibilities for the birth of a political government had emerged" during his consultations.
Di Maio said Wednesday he wants either a government made up of political figures or another election, according to remarks cited by the Ansa newswire, refusing to back Cottarelli's proposed interim administration of technocrats.
Both parties have in the past advocated leaving the eurozone, but drastically toned down their rhetoric on the euro in the run-up to the March election. On Sunday night, the party's political leader, Luigi Di Maio, seemed genuinely apoplectic.
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.
It is not clear if Five Star, an ideologically vague party that won more than 30 percent of the electorate, has alienated left-leaning voters upset about its alliance with the hard-right League.
"Without promising any miracles, I can say that, after the first months of this government of change, I would like us to have a country with a little less tax and a little more security, a few more jobs and a few less illegal immigrants", said a gleeful Salvini at a rally after the announcement.
"I will read the composition of the government", Giuseppe Conte, who will be sworn in Friday as prime minister with the rest of his Cabinet, said late Thursday.
There were fears a new election could turn into a referendum on Italy's European Union membership after Mr Mattarella vetoed the populist parties' choice of an arch-Eurosceptic as finance minister.
Under the current Italian legislation, the snap elections could be held no earlier than the end of July.
"In new elections, the radicals will likely rail even more loudly than before against Italy's pro-European "establishment", said Holger Schmieding, chief economist at Berenberg bank.