The ruling Five Star Movement and its coalition partner, the League party, look to have had a falling out over the budget.
Italy's disputed budget faced fresh turbulence on Thursday over a plan to increase fuel taxes on older petrol and diesel cars.
On Tuesday, the Lower House Budget Committee approved a tax on sales of high-emission petrol and diesel vehicles of up to €3,000, while also approving subsidies of up to €6,000 on low-emission vehicles.
It has led to a fallout between the ruling Five Star Movement and its coalition partner, the League party.
The plan comes as Italy tries to amend its 2019 draft budget, which has been rejected by the European Commission.
The Five Star Movement, which is pro-environment, encouraged the move.
But League party leader Matteo Salvini told Radio Rail: “I’m absolutely against any new tax on cars, which are already among the most taxed in the whole of Europe.”
He added that people who used more polluting cars did so because of necessity and not by choice.
Luigi Di Maio, deputy prime minister and leader of Five Star, said the government would seek to improve the measures.
“We do not want to harm families in difficulty .. who pick the cheapest car, nor do we want to create a shock to the Italian car market, to manufacturers or their workers,” Di Maio said on Facebook.
He added that amendments would be agreed with consumer associations, sector trade unions, and car producers.
The proposal comes amid neighbouring France's at-times violent "gilets jaunes" ("yellow vest") protests over the country's now-suspended fuel tax hikes.
What changes does Italy have to make to its draft budget?
Italy's original 2019 draft budget that was proposed to the EU said the deficit would rise to 2.4% of gross domestic product from 1.8% this year.
The European Commission rejected that as it breaks EU rules to reduce borrowing in the bloc.
Sources speaking to Reuters said Five Star is against a deficit as low as 2.0% of GDP but could consider 2.1%.
While the League, which has been at loggerheads with Five Star, is unwilling to make a big shift and lower the deficit target below 2.2%.
Italy hopes to set aside €10 billion for 5-Star's flagship policy of a " citizens' income" of up to 780 euros per month for 6.5 million poor Italians.
The budget also wants to allow people to retire earlier, freeing up about 400,000 jobs for the young, which would cost €7 billion.
The League sources added the protests in France will make the Commission less confrontational with other EU countries and would also mean that changes to France's budget over the fuel tax would mean the country's deficit would be above the EU's 3% benchmark.
An EU executive said the President of the European Commission and the Italian Prime Minister agreed in a phone call to continue talks on the budget, but no meeting has been scheduled yet.