The centre-left coalition of Romano Prodi, prime minister, was defeated on Wednesday in Italy’s upper house in a vote that underlined the government’s increasing difficulties as it tries to win approval for its 2007 budget.

“Take note, Prodi,” said Renato Schifani, a centre-right opposition senator. “You have already lost your majority in the Senate, even before your budget comes to a vote.”

The bill on which the opposition defeated the government by 151 votes to 147 concerned the relatively minor issue of property evictions.

But with a one-seat Senate majority, the government faces frequent knife-edge votes robbing it of the momentum to pursue a coherent, let alone reformist, economic policy.

Three weeks ago Mr Prodi’s government crashed to defeat in a vote on judicial reform when senators from a small centre-left party unexpectedly rebelled.

Such internal problems continued yesterday with a dispute on whether the government supported a budget amendment, submitted this week by coalition legislators, advocating a 45 per cent income tax bracket on people who earn €150,000 ($190,000, £100,000) or more.

Many businessmen, economists and reformists in Mr Prodi’s coalition already view the budget as giving in too much to the radical left’s demands for higher taxes.

Defending the budget, Tommaso Padoa-Schioppa, finance minister, said it would be enough to cut government borrowing to a level of 2.5 to 3 per cent of gross domestic product. “I don’t think any more is needed.”

In response to last week’s downgrade of Italian debt by two credit ratings agencies, Mr Padoa-Schioppa said: “Ratings agencies tend to recognise a change for the better or worse with a certain delay.”

He expressed confidence in the government’s ability to pass the budget despite its tiny Senate majority.