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By Stephen Brown and Silvia Aloisi
ROME (Reuters) - Italy's top court ruled on Wednesday that a law granting Prime Minister Silvio Berlusconi immunity from prosecution violates the constitution, in a verdict that will reopen trials against him and may undermine his government.
The 73-year-old prime minister depicted it as a politically motivated ruling by the Constitutional Court, five of whose 15 members are selected by the president, five by the judiciary and five by parliament.
"The Constitutional Court is a political organ, but we'll carry on. The trials against me are a farce ... Viva Italia and Viva Berlusconi!" he said with a clenched fist, adding that the court, the head of state and the media all favoured the left.
Analysts said the verdict was bound to weaken Berlusconi and make tough economic policy decisions less likely as the third largest economy in the euro zone struggles to recover from its deepest recession since World War Two.
"Italy is in bad need of reforms to get the economy going and this makes those even less likely because Berlusconi will be less inclined or able to focus on any reform effort," said Tito Boeri, an economist at Milan's Bocconi University.
Berlusconi's attack on President Giorgio Napolitano sparked what commentators said could turn into a dangerous clash.
After Napolitano rejected Berlusconi's charge that he was partial to the left, Berlusconi angrily said, "I don't care what the head of state says, I feel like I am being made a fool of."
Berlusconi's lawyers had warned that overturning the law would leave the prime minister so entangled in the courts that he would be unable to do his job properly.
His centre-right allies have even threatened early elections if what they call "concentric attacks" on Berlusconi over his private life and business dealings continue, though the premier vowed earlier this week to serve out his full term, until 2013.
Italy's business lobby was aghast at the idea of elections. "In a moment of crisis like this we need to manage a difficult situation and carry out reforms, and people would not understand us holding elections," said Confindustria's Emma Marcegaglia.
"PACK YOUR BAGS"
The Constitutional Court said the law passed last year soon after Berlusconi returned for a third term in power violates the principle that all citizens are equal before the law. It is also invalid because it was passed as a normal law rather than a constitutional reform, which is harder to approve, it said.
This is the second time the highest court in the land has thrown out Berlusconi's attempts to have immunity from the cases against him, after an earlier version was rejected in 2004.
The immunity also covered the president and two speakers of parliament but it was Berlusconi, who has faced corruption and fraud accusations linked to his Mediaset broadcasting empire, who had most at stake from losing it.
The opposition celebrated the verdict, with the anti-graft Italy of Values party saying: "Berlusconi would be well advised to pack his bags and get a change of air."
The "Alfano Law," one of Berlusconi's first acts after winning last year's election, halted all the cases against him, including one where he is accused of bribing British lawyer David Mills to give false testimony to protect his businesses.
Two other cases, one accusing him of tax fraud and false accounting in the purchase of TV rights by Mediaset and another alleging he tried to corrupt opposition senators, have also been frozen. Berlusconi denies any wrongdoing.
The prosecutors in those cases appealed to the Constitutional Court.
The ruling comes at a time when the prime minister's high approval ratings have been eroded by a series of sex scandals, including prostitutes attending parties at his home -- one of whom went public with some explicit recordings.
The centre right plans a mass rally in coming weeks to show solidarity with Berlusconi in the face of mounting opposition, which Berlusconi says has been orchestrated by the left-wing press in Italy and by biased Italian magistrates.
(Additional reporting by Philip Pullella, Paolo Biondi, Gavin Jones and Daniel Flynn; Writing by Stephen Brown; Editing by Robin Pomeroy and Louise Ireland)