John Hooper reports that Italy's constitutional court has ditched Berlusconi's immunity

In a morning radio interview, Berlusconi dismissed legal proceedings against him as "laughable" and "absurd" and said he would show his accusers what he was made of in court.

His defiance raised the prospect of a protracted political stand-off. Berlusconi's allies have already claimed that the decision by the country's top court represents a political plot to undermine the prime minister.

Berlusconi insisted he would not stand aside. "The government will forge ahead calmly, tranquilly and with even more grit than before because this will be absolutely indispensable for freedom and democracy in this country," he said.

"The two trials against me are false, laughable, absurd, and I will show this to Italians by going on television and I will defend myself in the courtroom and make my accusers look ridiculous and show everyone what stuff they are made of and what stuff I am made of."

Berlusconi faced a string of legal cases against his business interests when the law was brought in last year, and the constitutional court ruling raised the prospect of him becoming entangled once again in court proceedings instead of running the country.

Berlusconi, who is already struggling to contain the damage from a lurid sex and drugs scandal in which he is accused of using the services of prostitutes, has long claimed that he is the victim of a plot by leftwing judges and prosecutors. His supporters argued that the immunity bill was needed to protect him.

The court's decision marks the second time in five years that Italy's most august tribunal has rejected an attempt by the right to put its leader above the law.

The detailed reasoning behind the judges' decision will not be released for several weeks. But the statement said they had agreed that the immunity law violated not only article 3, which guarantees equality before the law, but also article 138, which sets out the procedure for a constitutional change.

The government will now have to decide whether to try again to furnish its leader with immunity by reforming the constitution. That requires either a popular referendum or a two-thirds majority in both houses of parliament.

A trial in Milan in which Berlusconi is charged with tax evasion, suspended last year after parliament approved the immunity law, can now resume. Having passed the age of 70, however, the prime minister can no longer be jailed even if found guilty.

His resumed prosecution will nevertheless be an embarrassment at a time when his government is leading a high-profile campaign against tax dodgers, and offering an amnesty to Italians who have salted money abroad to avoid tax.

The judges' decision could also mean Berlusconi is again put on trial for allegedly bribing David Mills, the husband of the Olympics minister, Tessa Jowell. The British lawyer is due to launch an appeal today against a four-and-a-half year jail sentence for accepting $600,000 (£375,000) in return for skewing his testimony in two cases in which Berlusconi was a defendant in the 1990s.

The prime minister was scratched from the trial because of the immunity law, but the court ruled in May that he had given the bribe. The case against him would have to be started again and is likely to be "timed out" by a statute of limitations before the judges have a chance to reach a verdict.

A more important consequence of yesterday's decision will be to give a new relevance to two investigations in which Berlusconi is a suspect. Allegations are being investigated that he "bought" two MPs with the aim of bringing down Italy's last centre-left government, although charges are unlikely to be laid against him. In the second investigation, he is accused of embezzlement and tax evasion in both Italy and the US, and that case is thought likely to proceed.

Dario Franceschini, the leader of Italy's biggest opposition group, the Democratic party, said the constitutional court had re-established the principle of the equality of citizens before the law. "Everyone is equal before the law, even the powerful," he said.

The act that was ruled unconstitutional offered immunity from prosecution to the four top state officials: the president, the speakers of the two chambers of parliament and the prime minister.

The controversy over the role of the judiciary reached fever pitch after an announcement by a judge in Milan on Saturday that he had awarded damages of €750m (£690m) against Berlusconi's Fininvest group.

The company at the apex of the prime minister's business empire was told to pay damages to the CIR group as compensation for having bribed a judge to ensure it won a battle for control of the publishing group Mondadori. Berlusconi's lawyer was convicted of buying that judge two years ago.

In the recent ruling, Judge Raimondo Mesiano ruled that Italy's prime minister had been "jointly responsible" for the offence.

Clean Hands put pressure on prime minister

Nowhere have judges and prosecutors had such an impact on politics as in contemporary Italy. In the early 1990s, the country's political order was overthrown by a vast inquiry into party corruption known as the Clean Hands investigation. By the time the inquiry had run its course, the then Socialists' leader, Bettino Craxi, was a fugitive from justice and the Christian Democrat party, which had dominated government for almost 50 years, was in ruins.

The Clean Hands inquiry also marked the start of Silvio Berlusconi's legal problems. He has since been repeatedly charged with, but never convicted of, a string of alleged offences. Today's judgment will reignite a debate at the centre of Italian politics: whether, as Italy's prime minister claims, the judiciary's prominent role is a consequence of its infiltration by leftwingers after 1968, or, as his critics insist, a reflection of its much-needed independence in a society riddled with cronyism.