Prime Minister Giuseppe Conte said government measures would lead to a recovery in the second half of 2019.
It is the third recession for Italy in a decade.
This means Italy is officially in recession, which is defined as two successive quarters of economic contraction.
The Italian economy suffered a harsh recession in 2012-13 and has enjoyed only slow growth since then. But, it's actually declining and unfortunately for Italy, this is not anything new.
Gross domestic product fell a quarterly 0.2 percent between October and December, following a 0.1 percent decline in the third quarter, and was up 0.1 percent on an annual basis, national statistics bureau ISTAT reported on Thursday.
Meanwhile, the country's GDP increased by 0.1 percent year-on-year in the fourth quarter of 2018, while the general 2018 year-on-year increase made one percent, compared to 1.6 percent increase registered in 2017, Istat added.
In separate figures released by Eurostat, unemployment in the eurozone remained at 7.9%.
Germany, Europe's biggest economy and the continent's economic driver, unexpectedly lost momentum in the third quarter of 2018, with a contraction of 0.2 per cent over the previous quarter. "The Italian economy has been growing less than the average in other European countries for the past twenty-five years, unfortunately".
It expanded by 1.8 percent in 2018 overall, its weakest rate in four years.
But it was watered down after European Commission objections at Italy's high public debt levels. The Bank of Italy and the International Monetary Fund both forecast 0.6 percent. If its downturn persists, it could drag down the rest of the euro zone, whose growth outlook was looking shaky even before it was known that Italy was sinking as fast as it is.
The EU Commission, anxious about a renewed flare-up of the region's dormant debt crisis, has insisted that the Italian government rein back its spending plans because they have the potential to further swell the country's high debt levels.
Uncertainty over Britain's exit from the European Union also weighed on sentiment that is expected to drag down growth in the final quarter when the data becomes available next month.
Separate economic indicators point to further weakness at the start of 2019 and most economists expect a hard period ahead if the main causes of uncertainty are not addressed soon.