Mr Letta easily won yesterday's confidence vote in the Italian Senate, allowing him to keep his five-month old coalition alive.
The voting was anti-climactic after former premier Mr Berlusconi acknowledged defeat and said he would support Mr Letta. Defections in his party robbed Mr Berlusconi of the backing he needed to bring down the government.
In brief remarks before a confidence vote, Mr Berlusconi said: "Italy needs a government that can produce structural and institutional reforms that the country needs to modernise. We have decided, not without internal strife, to vote in confidence."
It was a huge setback for Mr Berlusconi. He had demanded his five cabinet ministers quit the government and bring it down.
He is incensed at a vote planned for Friday that could strip him of his Senate seat following his tax fraud conviction and four-year prison sentence.
Mr Letta had hailed his five-month-old government's successes and outlined his agenda to revive Italy's moribund economy and turn around its record unemployment.
He also warned MPs in the Senate that Italy "runs a risk, a fatal risk" depending on the choices they make.
"Give us your confidence to realise these objectives. Give us your confidence for all that has been accomplished," he said to applause. "A confidence vote that isn't against anyone, but a confidence vote for Italy and Italians."
Mr Berlusconi's People of Freedom party has been badly divided ever since Italy's high court upheld his tax fraud conviction and sentence in August.
But it has been thrown into chaos after several MPs and his closest ally and political heir Angelino Alfano openly defied him and said they would support Mr Letta.
Mr Alfano has served as Mr Letta's deputy in the coalition government and clearly thinks it has accomplished a great deal of the Berlusconi party's agenda.
Mr Letta appealed to MPs' sense of duty to not create any more upheaval, which has caused Italy untold financial loss in recent years.
He compared it to Italy's great post-Second World War economic boom that was accompanied by comparative political stability.
He said: "The majority of Italians are telling us - I should say they are yelling at us - that they can't take any more of these scenes of bloodshed in the political arena, and [politicians] who fight over everything but nothing ever changes."
Many centre-left MPs, as well as ordinary Italians, are disgusted the government was essentially teetering over the legal woes of a single man, since the crisis began over Mr Berlusconi's attempt to avoid being kicked out of the Senate for his tax fraud conviction.
A law passed in 2012 says anyone receiving sentences longer than two years cannot hold public office for six years. Mr Berlusconi has challenged the law's constitutionality and has accused judges who handed down the sentence of trying to eliminate him from Italy's political life.