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The carrier will seek court protection from its creditors to enable it to continue operating while it undergoes a radical restructuring.
Plans are being drawn up to split the carrier into two and to sell a stake in a new entity to a foreign airline.
Losing 1m euros a day, Alitalia has survived on a 300m-euro state loan.
Split in two
Guaranteeing the airline's future will depend on securing fresh investment and persuading its unions to accept large job cuts.
Both Air France KLM and Lufthansa have expressed interest in investing in any new entity which emerges from the current business.
According to Corrado Passera, head of the airline's financial advisers Intesa Sanpaolo, Alitalia's board drew up a request to seek bankruptcy protection on Friday.
This would give the firm breathing space to reach agreement on how the business can proceed.
Future plans for the carrier would see it divided in half, with its loss-making operations remaining under bankruptcy protection.
Profitable short-haul routes would be hived off to a new business, controlled by a consortium of Italian investors including budget airline Air One which would effectively be merged with Alitalia.
Italian ownership
Prime Minister Silvio Berlusconi has made Alitalia's continued ownership by Italian interests a precondition of any rescue deal.
However, experts have said the airline can only survive in the future as part of some European alliance.
Previous attempts to sell the business to a foreign airline have foundered over union concerns about job losses and unease over the severity of the airline's financial problems.
The airline's perilous position was put into perspective by Roberto Colaninno, appointed to take charge of the new entity that emerges from the restructuring.
"No one can buy Alitalia in the state it's in," he told La Repubblica newspaper.
"With all respect, I am not Merlin the magician. The business is toast. It doesn't exist any more. There's nothing left."
Alitalia has been crippled in recent years by strategic indecision, poor industrial relations and soaring fuel costs.
Its shares were suspended earlier this summer while the firm has delayed the release of its 2007 accounts.
(BBC)
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