ITALY’S general election fiasco deepened last night as official results showed that Romano Prodi had won but Silvio Berlusconi refused to concede defeat.

Signor Prodi claimed victory, and European colleagues rushed to congratulate him, after official returns indicated that he had squeaked home by the narrowest of margins in both the Senate and Chamber of Deputies.

But Signor Berlusconi, Prime Minister for the past five years, refused to go quietly. He claimed that there had been “many irregularities” in the voting. “We do not believe that today, as things stand, someone can claim to have won given the numbers, which display many, many, many murky aspects. I would say too many,” he said last night.

Signor Berlusconi even proposed that he and Signor Prodi should negotiate “a grand coalition, in the interests of national unity, of the kind formed in other European countries such as Germany”. September’s general election in Germany was so close that the Christian and Social Democrats were forced to form a coalition.

The Supreme Court will now have to decide whether Signor Berlusconi’s complaints are valid. But Signor Prodi was proceeding last night as if victory was his, and his allies accused Signor Berlusconi of seeking to subvert the election. The official results showed that his centre-left alliance won the lower house by a margin of only 25,000 votes out of 38 million cast, with 49.8 per cent to the centre-right’s 49.7 per cent. Signor Berlusconi’s centre-right coalition demanded a recount of 500,000 spoilt ballot papers.

Under the new proportional representation system extra seats are awarded to the overall winner to guarantee a majority. This gives Signor Prodi 340 seats to Signor Berlusconi’s 277.

The battle for the Senate was equally close, with the Centre Left winning 158 seats to 156 only because it secured four of the six seats elected by the 2.7 million Italian voters living abroad. A prime minister must control both houses to govern.

Some European leaders did not wait for the official results before congratulating Signor Prodi, 66, the former European Commission President.

France and Luxembourg said that they hoped his victory meant Italy would help them to “relaunch” Europe after the Euroscepticism of the Berlusconi era. José Manuel Barroso, Signor Prodi’s successor at the European Commission, hoped that a Prodi government would be “in the great Italian tradition, a government that is enthusiastic for Europe” .

Signor Prodi — a critic of the Iraq war — promised “constructive relations” with Washington, but he insisted that Europe would be at the centre of his Government’s policy.

The financial markets were less sanguine about the victory of a coalition that ranges from centrist social democrats to communists. The Milan stock market lost 2 per cent on fears that Signor Prodi’s wafer-thin majority was a recipe for political paralysis and instability when the country’s economy desperately needed reform. Signor Prodi countered that he had a stronger mandate than when he won in 1996. He had no majority then and governed with the communists’ unofficial support until they brought him down in 1998. He promised a “politically and technically strong” government and said: “We can govern for five years.”

The election was dominated by the economy, with Italians blaming Signor Berlusconi for failing to generate jobs and growth, and apparently unimpressed by his last-minute promises to cut taxes. Signor Prodi promised to reinstate an inheritance tax abolished by Berlusconi, but only for the very rich, and to lower labour costs by cutting payroll taxes.

He denied newspaper headlines saying that the country was split in half and insisted that his Government would represent all Italians, “even those who didn’t vote for us”.

“Today we turn a page,” he told cheering supporters outside his headquarters in Piazza dei Santissimi Apostoli. “Until the very end we were left in suspense, but in the end victory has arrived. We have won, and now we have to start working to implement our programme and unify the country. We leave behind the bitter taste of a long and difficult campaign.”

The Supreme Court must confirm yesterday’s provisional results, and rule on Signor Berlusconi’s complaints, before the new parliament convenes on April 28. The new Government will not be formed until next month, after Parliament chooses a successor to President Ciampi, who is standing down after seven years.

Times Recommends

• Times Charity Appeal: SolarAid
• Is it Black Monday all over again for Dubai?
• Behind the scenes at the biggest deal