The European Commission put Italy on notice on Wednesday for its deteriorating deficit and huge debt, reopening a battle with populist-led Rome.

The move by the EU's executive arm against Italy's bloated budget begins a complicated process that - if approved by eurozone ministers - could result in a fine of more than 3.0 billion euros ($3.4 billion).

"We have concluded that ... a debt-based excessive deficit procedure is warranted for Italy," EU Commission Vice President Valdis Dombrovskis said, adding that bloc ministers must confirm the decision.

Italy's Deputy Prime Minister Matteo Salvini on Saturday vowed not to yield to the EU, with fears that his fractured government could collapse under the pressure from Brussels.

The coalition of the far-right League and anti-establishment Five Stars Movement is deeply divided on how to handle the offensive by Brussels, with Prime Minister Giuseppe Conte threatening to resign if the squabbling did not stop.

The threat to put Italy into the sin bin comes on the same day that the commission officially proposed to remove Spain from the procedure, with Brussels satisfied that Madrid's public spending was back in order a decade after the financial crisis.

Italy's public debt now sits at 2.3 trillion euros ($2.6 trillion), or 132.2 percent of Italy's GDP - way above the 60 percent EU ceiling.