Italy's centre-left leader Romano Prodi says he has won the right to become the country's prime minister following a narrow victory in the general election.
Romano Prodi has already proclaimed victory in the election
Latest results give Mr Prodi's bloc 49.8% against 49.7% for the ruling centre-right in the lower house.
An official projection shows a slim majority in the Senate - the upper house - for Mr Prodi's bloc.
But Prime Minister Silvio Berlusconi's coalition is disputing the results and refusing to admit defeat.
An aide to Mr Berlusconi demanded a "scrupulous" investigation into why an estimated 500,000 ballots were annulled.
Mr Prodi's bloc is thought to have won the vote in the lower house by just 25,000 votes.
Final confirmation of the result will hinge on results expected later on Tuesday from Italian voters living abroad.
They elect six senators to the upper house, and whether those senators join Mr Prodi's or Mr Berlusconi's coalition may prove crucial.
'Wake up Italy'
Italians awoke on Tuesday to newspaper headlines declaring that the election had split the country in two.
Mr Prodi, a former prime minister and former president of the European Commission, appeared certain that his coalition had earned the right to govern.
He would have the authority to lead the country for five years despite the apparent narrow margin of victory, he added, vowing to "wake up Italy".
"We want peace, we want unity, we want economic recovery and harmony," he told a news conference.
Mr Prodi said he had spoken to Italian President Carlo Azeglio Ciampi earlier on Tuesday, but he was still waiting for Mr Berlusconi to concede.
"I am waiting for a phone call from Mr Berlusconi because this is what happens in mature democracies."
The BBC's David Willey, in Rome, says that even if Mr Prodi has secured a majority in both houses of parliament, his razor-thin majority in the Senate will make it difficult to govern the country.
Mr Berlusconi, a billionaire and media magnate who has been prime minister since 2001, has not yet commented directly on the results.
The winning coalition will automatically be awarded 55% of the lower house seats - 340 in total - under a new electoral law.
The lower and upper houses have equal power in Italy's electoral system. One bloc must win both to prevent parliamentary stalemate.
Senator Lucio Moran, a Berlusconi ally, said the prime minister's party was obliged to inquire about the results.
"The gap is so narrow we have to check the spoiled ballots, especially those who have been contested by our representatives or representatives of other parties. The gap is so narrow that we have to ask that."
Milan's stock exchange opened 1% down on Tuesday amid concerns over political deadlock.
Italy's economy has remained sluggish for much of Mr Berlusconi's tenure, and the country has substantial foreign debts.
"We have to immediately send a message to the markets, to whomever wants to invest in Italy, that the country is not going to fall apart," said Culture Minister Rocco Buttiglione, a member of Mr Berlusconi's party.
Defeat for Mr Berlusconi would end Italy's longest-serving government since World War II.
The result follows an acrimonious campaign and a high turnout on polling day. More than 83% of the electorate cast a vote.
Prime Minister Silvio Berlusconi has led Italy since 2001
During the campaign, Mr Berlusconi mocked left-wing voters and Mr Prodi likened the prime minister to a drunkard.
Exit polls released straight after the voting ended suggested that Mr Prodi's coalition had gained a narrow victory, but the situation became confused as the night progressed.
The formation of a new government will have to wait until after the election of a new Italian president next month. Mr Ciampi's seven-year term of office is about to expire.