The Italian government is to dispose of half its 50% stake in national carrier Alitalia, a larger share than expected.
Investors will get a chance to buy 25% of Alitalia
The move is part of a plan to revive loss-making Alitalia's fortunes, with a merger on the cards.
Rome had previously maintained that it would not reduce its holding in Alitalia below 30%.
The loss-making airline has been looking for new partners and has had talks with Air France-KLM, the most likely candidate.
The Italian government described the sale as the "finalisation of the company's privatisation".
Investors are expected to get their chance to buy 25% of Alitalia in January 2007.
French and Italian leaders Jacques Chirac and Romano Prodi have already had talks on a merger of their national airlines.
However, Air France-KLM has insisted on privatisation and financial restructuring as conditions for increasing its current small stake in Alitalia.
Alitalia's chief executive, Giancarlo Cimoli, has said that the airline's future depends on a major alliance.
"The only strategic direction for Alitalia is to integrate itself in a big international group," he told a parliamentary commission earlier this week.
The position of the Alitalia boss came under attack when an Italian government minister responded to the privatisation initiative by calling on senior management of the airline to resign.
Infrastructure Minister Antonio Di Pietro demanded a boardroom sweep-out, saying: "With today's decision, the exit doors are open for those who occupy positions of power at Alitalia because they have failed in their mission."
Lufthansa has also been touted as a possible partner for Alitalia. But the German carrier has denied a bid for the Italian airline was imminent.