Berlusconi suffered a humiliating defeat when 235 of the 305 senators present in the Senate voted to support the government – far higher than the majority of 153 senators required for a majority.
Immediately before the vote Berlusconi was forced to make an embarassing U-turn when as many as 25 senators from his People of Freedom party (PdL) threatened to support the centre-left prime minister.
"We have decided to vote for confidence, not without internal disputes," Berlusconi, a billionaire media mogul, said just before the vote.
The vote of confidence was provoked after Berlusconi's demand that the five ministers from his centre-right party leave the coalition government on Saturday. The resignations were then rejected by Letta late Tuesday.
In an unprecedented move the man widely seen as Berlusconi’s protégé, deputy prime minister Angelino Alfano, moved to defy his leader and back Letta, the man who was appointed to lead the country in April, breaking two months of political deadlock after inconclusive February elections.
“It is the end of the Berlusconi era, he’s finished,” Massimo Franco, a highly respected commentator for the Italian daily Corriere della Sera, told The Local.
Letta shook his head as Berlusconi, the three-time prime minister, who has dominated Italian politics for two decades, was speaking in the chamber. His address was followed by stunned silence.
A visibly shaken Berlusconi later left the Senate to loud boos and whistles from his political opponents.
Franco Pavoncello, professor of political science and head of John Cabot University in Rome, described the vote as a “blow” for Berlusconi and said his action had paradoxically given new impetus to the Letta government.
“I think it’s certainly a major defeat for him this time,” Pavoncello told The Local.
“This was his last attempt to remain in the game. He won’t be able to stop his impeachment from moving forward. He will be out of the Senate.”
A Senate committee is due to meet on Friday to consider whether to expel Berlusconi after his tax fraud conviction was upheld by the Supreme Court in August and he must decide by mid-October whether to serve his one-year term under house arrest or by doing community service.
The self-made billionaire was first elected prime minister in 1994 when he burst on to the political scene backed by a vast media and property empire based in Milan.
His showmanship and sense of humour immediately charmed Italian voters even though Berlusconi soon became renowned around the world for offensive remarks and comical antics.
He has been written off countless times but only this week commentators were warning not to underestimate the extent of his wealth, power and political strategizing even though he was ousted from power in disgrace in 2011 amid sex scandals and financial panic when Italy teetered on the brink of bankruptcy.
Berlusconi surprised the sceptics when he re-emerged with a powerful election campaign earlier this year that delivered him almost a third of the vote but he has been dogged by legal woes for some time.
In March, he was sentenced to one year in jail for publishing a confidential police wiretap in a newspaper he owns to damage a political rival.
Later he was sentenced to seven years in jail for paying for sex with an underage prostitute Karima El-Mahroug, known as "Ruby the Heart
Stealer", and for abuse of office. He has denied any wrongdoing and is appealing the sentence.