Italy's civil aviation authority intervened in the saga over the failing national airline Alitalia today and gave Silvio Berluscuno, the Prime Minister, an effective deadline of Monday to mount a rescue attempt.

The airline looks set for liquidation after a business consortium withdrew a rescue offer because of continued opposition from trade unions to proposed job cuts. That decision set Mr Berlusconi his toughest challenge since he took office for the third time in May, vowing to crack down on crime, revive the economy and find an "all-Italian" solution for the national flag carrier.

"Italians voted Berlusconi into power precisely so that he could win these challenges," said Il Sole 24 Ore, the Milan financial daily. "The Alitalia disaster looks like a stain on the image of an invincible Berlusconi."

His "Plan B" options include persuading the CAI consortium to return to talks, and putting together an alternative group of investors. However, Maurizio Sacconi, the Labour Minister, said the only real hope was for the CAI consortium to change its mind. "We need to return to the negotiating table because there is no-one else in the race" he said.

If there is no new rescue plan the regulator, the National Civil Aviation Authority (ENAC), which meets on Monday, could decide to ground Alitalia by the end of next week. Today, more than 30 Alitalia flights were cancelled, although the company denied this was because it had run out of fuel. The Italian railway company Ferrovie dello Stato said it was adding extra trains to its Milan to Rome route as passengers desert the skies for the railways.

Mr Berlusconi, who had calculated that the CAI consortium would strike a deal with the more amenable trade unions and cold-shoulder the militants, appeared taken by surprise by the collapse of the deal. He was reported to be "furious" with Roberto Colannino, head of the scooter makers Piaggio and chairman of the consortium.

La Repubblica said Mr Berlusconi's only other possible "Plan B" was a deal with a foreign airline such as Air France-KLM or Lufthansa. However, the major European airlines have all said they are not interested, and Mr Berlusconi was partly responsible for seeing off an earlier takeover bid by Air France-KLM on nationalistic grounds.

Some reports said Mr Berlusconi's third option was to nationalise Alitalia, to give it time to sell unprofitable assets and reorganise for a future sale. However, this was denied by Giulio Tremonti, the Economy Minister. If no last minute solution is found Alitalia faces inevitable liquidation. Alitalia was declared bankrupt late last month, paving the way for the offer by Italian investors to buy its profitable assets.

Mr Berlusconi blamed Alitalia's nine unions, six of which refused to approve the CAI plan, including unions representing pilots and flight attendants. Fabio Berti, head of the ANPAC pilots' unions, said he hoped to meet Mr Berlusconi face to face over the weekend.

Il Giornale, the newspaper owned by the Berlusconi family, put the blame for the crisis on the left-wing union CGIL and its leader Guglielmo Epifani under the headline: "Alitalia collapses — thanks to the unions". The paper added: "The unions have tried for years to bring down Italy but they have brought down Alitalia instead".

Many newspapers deplored the reaction of Alitalia staff at Fiumicino, the main Rome airport, who exulted as news of the withdrawal of the rescue plan came through, punching the air and shouting "Better a collapse than those bandits", a reference to the industrialists in the consortium. "The cost of this irresponsibility is clear," said Il Messaggero, the Rome daily, "163 aircraft on the ground and 18,500 employees without jobs."

It said the protesters were "like those who danced on the Titanic as the ship went down". They were like people "smiling at a funeral", said La Repubblica, reporting that Air France had already applied for Alitalia's slots at Fiumicino, while Lufthansa was seeking the slots at Malpensa near Milan.

Augusto Fantozzi, the extraordinary commissioner running Alitalia, said that he had made all possible efforts to keep the company in business. In a letter to Corriere della Sera he said he had personally contacted the presidents of Air France, Lufthansa and British Airways, but "they declined my request to intervene".

The CAI consortium had put forward a €1 billion offer for Alitalia, and planned to merge it with Air One, the country's second largest airline. The Italian government has spent €5 billionros over the last 15 years to keep Alitalia flying, the last handout being a €300 million emergency loan in April. It is barred by EU rules from further subsidies; 19,000 jobs at Alitalia and thousands of others at Italian airports are now at risk.

The company, which has been losing €2 million (£1.58 million) a day, has debts of more than €1 billion and risks running out of cash by the end of this month, filed for insolvency at the end of August so that the state-backed rescue and relaunch effort could get under way.

The CAI rescue package included more than 3,000 job cuts and contracts laying down more hours for the same pay. Mr Sacconi confirmed a warning by Mr Berlusconi that workers left without jobs because of liquidation would not benefit from the generous redundancy terms offered as part of the CAI rescue plan.

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