The decision was made after residents in the Ligurian coastal town of Bordighera, close to the French border, complained that they were being bothered by panhandlers.
Mayor Giacomo Pallanca said it was "pointless" to punish the beggars "who can't or will never be able to pay" fines, and so the onus will now be on people to stop giving them money.
The mayor ushered the rule in ahead of the tourism season, which usually gets underway over the Easter weekend.
"Since real organizations are often behind this phenomenon, we must eradicate it by discouraging those who offer money," he told Il Secolo XIX.
“For anyone who is really in a state of destitution, there are social services available.”
Pallanca was unavailable for comment when contacted by The Local.
Similar initiatives have divided debate, but Steve Barnes, the co-founder of Project Rome, which supports hundreds of homeless people in the Italian capital, said the move by Bordighera is “very positive”.
“Not only is it humiliating to throw a few small coins at a person on the street, but it is far better to show them genuine compassion and kindness,” Barnes, who himself has been homeless, told The Local.
“A move like this also eliminates the risk of supporting organized street crime or fuelling an alcohol or drug habit, which could better be supported by the appropriate authorities.”
Project Rome also urges people to stop giving money, and instead start acting with genuine warmth.
“They need to be treated as fellow humans and not invisible, or someone to rain small change down on.”
At a national level, begging is legal in Italy. And even though it is forbidden to beg with children or animals, enforcement of the law is lax.
But other Italian cities have also adopted their own rules. In 2008, Venice became the first city to take a hardline approach by banning beggars. Fines of between €25 and €50 were introduced for those caught begging, while police can also confiscate their takings. The move was mostly aimed at preventing children from being exploited by criminal groups.
Meanwhile, penalizing begging has aroused fierce debate in other countries. Last year, Norway was forced to scrap a proposal that would have slapped fines and jail terms on beggars and those who help them amid global outrage.
Begging is illegal in Denmark and the UK, where prosecutions surged 70 percent in 2014.