Rome - Italy's government was set yesterday to agree on far-reaching reforms to improve the Bank of Italy's governance as political support for Antonio Fazio, the embattled central bank governor, eroded further.

The proposals are expected to be put to a cabinet meeting tomorrow and to win broad support among ministers, including some who until recently have defended Mr Fazio from accusations of biased interventions during the takeover battle of an Italian bank.

Giorgio La Malfa, European affairs minister, who has previously expressed firm but not unqualified support for Mr Fazio, yesterday became the first cabinet member to say publicly that the governor should consider resigning, "in the primary interest of the state and of the Bank of Italy".

Mr Fazio, who regulates Italy's banking sector and has been governor since 1993, is under fire for allegedly favouring the takeover bid of an Italian bank over an offer from ABN Amro, the Dutch bank, for Banca Antonveneta, a northern Italian lender.

Mr Fazio has strongly defended his conduct in the controversy, revealed in numerous published transcripts of phone conversations he and his wife have had in recent months. The Bank of Italy said on Tuesday that his resignation was not under consideration.

Industrialists, economists, trade unionists, former regulators and Italy's centre-left opposition say Mr Fazio should resign because of the perception that he was biased against ABN Amro and had damaged the credibility of the central bank.

Among the three most important reforms that the government appears ready to approve is a fixed term of office, probably eight years, for the Bank of Italy governor. At present Mr Fazio serves an indefinite term.

The government also wants to end what critics have called Mr Fazio's "absolute monarchy" at the Bank of Italy by introducing a more collective decision-making system, akin to that of the European Central Bank's governing council.

The third reform involves returning the Bank of Italy to public ownership. The central bank, though independent, is at present majority-owned by the private banks that it regulates, an anomaly that dates from the privatisation of Italy's banking sector in the 1990s.

Large private banks such as Banca Intesa have made clear they will give up their stakes if the central bank's independence is guaranteed.

The three proposals are likely to be included in a bill on financial market regulatory reform that is under review in the Senate, parliament's upper house.

Since opposition legislators support the changes, expectations are high that the coalition of Silvio Berlusconi, prime minister, will succeed in turning the proposals into law before parliament dissolves early next year ahead of a national election due by May.

But it remains uncertain how long Mr Fazio may remain in office.

Ministers in the populist Northern League party are edging away from their earlier full-blooded support for him.