* Prime Minister Giuseppe Conte resigns
* PM accuses League leader Salvini of recklessness
* PM: Salvini harming nation for personal, political gain
* Head of state begins search for new coalition on Wednesday
* Markets rally on hopes snap elections can be avoided(Updates with Conte resigning, adds quotes, background)
By Crispian Balmer and Gavin Jones
ROME, Aug 20 (Reuters) - Italy's prime minister resigned onTuesday after launching a blistering attack on his own interiorminister, Matteo Salvini, accusing him of sinking the rulingcoalition and endangering the economy for personal and politicalgain.
Prime Minister Giuseppe Conte, addressing parliament afterit was recalled from its summer recess to decide the future ofthe 14-month-old government, accused the far-right League partychief Salvini of seeking to cash in on his rising popularity.
In a shock move on Aug. 8, Salvini declared that hisalliance with the anti-establishment 5-Star Movement was deadand called for elections, but the gambit could yet prove a bigpolitical blunder and open the door to power for his rivals.
Politicians from 5-Star and the centre-left Democratic Party(PD) are openly discussing forming a new coalition which wouldpush the League into opposition and give Italy a more centrist,pro-European government.
"The interior minister has shown that he is following hisown interests and those of his party," Conte told a packedSenate, a stony-faced Salvini sitting by his side. "Hisdecisions pose serious risks for this country."
He described Salvini's actions as reckless and "liable totip the country into a spiral of political uncertainty andfinancial instability".
After the Senate debate Conte, who belongs to neither of thecoalition parties, handed his resignation to President SergioMattarella, who said he would begin talks with parliamentarygroups on Wednesday to see if a new coalition can be formed.
Failing that, Mattarella would have to dissolve parliament,3-1/2 years ahead of schedule, to allow for autumn elections.
The consultations with party delegations will begin withminor groups at 1400 GMT on Wednesday. Mattarella will hear allthe main parties on Thursday, concluding with 5-Star at 1500GMT.
The PD's leadership is also scheduled to meet on Wednesdayto discuss the prospect of hooking up with 5-Star. The twoparties have been bitter political foes for years.
Financial markets rallied on Conte's resignation, seeminglyhopeful that snap polls could be avoided.
CHALLENGING EUROPE
Salvini at times shook his head, rolled his eyes or noddedto League senators as the prime minister accused him of being"irresponsible", "reckless", "alarming" and "disrespectful".
Conte said he was worried by Salvini's threat to call peopleinto the country's squares if his drive for elections werethwarted, as well as his demand for "full powers".
"We do not need men who have 'full powers', but people whohave institutional culture and a sense of responsibility," hesaid in an hour-long speech in which he also denounced Salvini'shabit of brandishing the cross at his political rallies.
Touching on a particularly sensitive subject, he also saidSalvini should provide explanations over allegations that theLeague attempted to obtain illegal funding from Russia through acovert oil transaction.
Salvini rejected Conte's comments, saying other parties wereafraid of going to elections and losing their influence.
He said his political goal was to challenge the EuropeanUnion's fiscal rules, which he has blamed for impoverishing thecountry. Rome should spend at least 50 billion euros ($55billion) to stimulate the chronically weak economy, he added.
"I am not afraid," he said. "I don't want Italy to be aslave to anyone, and I don't want Italy to be given a long chainlike a little dog. I don't want any chain at all."
Italy has not held an election in the autumn since World WarTwo because the final months of the year are traditionallydedicated to drawing up the budget -- a key moment for a countrywith one of the world's largest debt mountains.
At the end of the parliamentary debate the League withdrewthe no-confidence vote in the government that it had tabledearlier this month, but Conte said the move had come too late.
"I see that the League's leader Matteo Salvini lacks thecourage to take responsibility for his actions. If there's alack of courage, don't worry, I'll take responsibility beforethe country that is watching us," said Conte.
Mattarella is likely to push for a swift decision by the5-Star and PD on whether they can work together. Failing that,he will probably dissolve parliament and call a vote in lateOctober or early November.
"They won't be able to run away from elections for ever,"Salvini told reporters as Conte met the president.($1 = 0.9017 euros)
(Additional reporting by Angelo Amante Giselda VagnoniEditing by Mark Bendeich and Gareth Jones)