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Merger fever has gripped the sector as banks vie to become the country's biggest financial institution.
UniCredito Italiano, Italy's largest bank in terms of market value, launched a share exchange offer for Banca Commerciale Italiana to create an enlarged group with assets of 260 billion euros (£174bn).
While San Paolo - Italy's largest bank by assets - fired back by launching a bid for Banca di Roma to create a group with assets of 286 billion euros (£191bn).
Rapid consolidation
The deals mark the latest moves in the rapid consolidation of the European banking industry.
European banks are in a headlong rush to join forces to cut costs and compete on an international stage - a goal that has become even more important with the introduction of Europe's new single currency, the euro.
The deals are also a mark of the sweeping reforms being conducted throughout Italy's corporate sector as it embraces free market capitalism.
The two new Italian banking groups will be among the largest in Europe.
Bitter banking battle
The deals come in the wake of a battle between France's leading banks to dominate the country's financial sector.
UniCredito said its link-up with BCI -- dubbed Eurobanca - would form Europe's fifth bank in terms of assets.
"UniCredito Italiano and BCI are ideal partners because of their complementary strengths, size, and corporate cultures," UniCredito said in a statement.
Turin-based San Paolo said its merger with Banca di Roma, the largest bank in southern Italy, would "create a group of European dimensions able to exploit a substantial commercial presence in Italy based on strong geographical synergies".
The four banks together employ more than 100,000 staff - some of whom are likely to lose their jobs.
British banks are lagging behind their European counterparts and a big merger in the sector has so far proved illusive.
French banks reject bid
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