Bank of Italy governor Antonio Fazio stood increasingly isolated yesterday after government ministers pressed him to quit following a takeover scandal that has tarnished the central bank.

Economy minister Domenico Siniscalco said the government had expected Fazio to resign after it agreed a package of measures on Friday that curb the Bank of Italy's extensive powers.

"If I had been Fazio I would have resigned," Mr Siniscalco told a meeting of business and political leaders in northern Italy.

Although the government cannot fire Mr Fazio, Mr Siniscalco said if the central banker continued to resist, he would start a procedure that could lead to Mr Fazio's resignation.

"I have seen that moral suasion has not worked, therefore I will take my own steps within the institutional framework," Mr Siniscalco said, without elaborating.

Prime minister Silvio Berlusconi's government approved the reform measures on Friday after Fazio was accused of unfairly favouring local bidders in a takeover battle for Banca Antonveneta involving Dutch bank ABN AMRO.

The government stopped short of punishing Mr Fazio, but he has since faced escalating calls to quit the central bank to erase a view held by some investors that foreigners in Italy are not treated equally with Italians.

Mr Fazio has denied any wrongdoing in his 12 years as governor and he still has a government coalition ally in the Northern League party. Labour minister Roberto Maroni, a Northern League member, yesterday denied that Mr Berlusconi supported Mr Siniscalco's comments.

The prime minister, fighting to keep his coalition together for general elections next year, has so far not passed judgment on the powerful bank chief.

However, members of the other three coalition parties, including deputy prime minister Giulio Tremonti, a member of the prime minister's party Forza Italia, said over the weekend that Mr Fazio had a duty to resign because of the changes to his office.

"Up until now the government has left it up to Fazio to take a decision, but if he doesn't, the government should intervene ... with a public request for him to step down," technology minister Lucio Stanca said yesterday.

The process to revoke Mr Fazio's mandate would require Mr Berlusconi to make a statement in the name of the government, in which case he would need the support of the Northern League, the coalition party that torpedoed his previous government in 1994.

Mr Berlusconi, who is already fighting a challenge from the coalition UDC party about his leadership at the next election, refused to talk to reporters when he left the conference where Mr Siniscalco had spoken.

The reforms agreed on Friday, introduce a seven-year, non-renewable term of office for the governor. - (Reuters)