The union represents the culmination of attempts by the National Alliance to shed its fascist past and be accepted by Italians as a mainstream political force.

The party held its last congress in Rome at the weekend and formally approved the merger with Mr Berlusconi's People of Freedom bloc.

Gianfranco Fini, 57, the party's leader who once described the late dictator Benito Mussolini as the greatest statesman of the 20th century, is also the speaker of the lower house of parliament, the Chamber of Deputies.

Analysts say he is angling to take over leadership of the joint party once Mr Berlusconi, 72, retires.

"We have come to terms with our past, we have said clear words of condemnation over Italian history between the two wars. Today a long chapter in the life of Italy's post-war Right comes to an end," Mr Fini said.

The alliance between the two parties dates back to the mid-1990s. The alliance helped Mr Berlusconi, a self-made billionaire, win a third term in office last year, but there are lingering tensions between the two leaders.

Mr Fini gave warning that, as head of the political union, the prime minister must be careful not to cultivate a "personality cult".

Addressing 1,800 delegates at the congress, Mr Fini said he and his allies wanted a strong voice in the new party.

"Berlusconi knows that his strong and recognised leadership can in no way become a personality cult. We must guarantee that People of Freedom is not the party of one person, but of one country."

Mr Fini has tried hard to distance himself from the political legacy of Mussolini and recently described anti-Jewish laws adopted by the dictator as "a shameful page in our history".

He fell out with the former dictator's grand-daughter, Alessandra Mussolini, the MP who left National Alliance in 2003 to form her own party, Social Action.

Like Mr Fini, Gianni Alemanno, another National Alliance politician, has been adept at renouncing his neo-fascist past, and succeeded last year in becoming the first Right-wing mayor of Rome since the Mussolini era. He wears around his neck a Celtic cross, a symbol of the Italian extreme Right.

The National Alliance was formed in 1994, from what was a neo-fascist party forged out of the post-war political legacy of Mussolini.

The merger strengthens Mr Berlusconi, whose approval ratings currently hover at around 58 per cent. The Left-wing opposition he faces, the Democratic Party, is demoralised and in disarray.