The coach signed a two-year extension prior to the tournament but is stepping down after the Azzurri failed to advance beyond the group stage.
The former Fiorentina boss signed a two-year extension immediately prior to the tournament but could not prevent a 10-man Azzurri side from crashing out at the group stage of a second straight World Cup, following the dismissal of Claudio Marchisio for a high tackle on Egidio Arevalo Rios.
"I never wanted to hear that I was stealing the money of Italian tax payers," he told reporters as he announced his decision at a post-match news conference. "My resignation is irrevocable too."
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Giancarlo Abete, head of the Italian Football Federation, has also submitted his resignation and said he has asked Prandelli to reconsider his decision.
"I will go to the board and offer my irrevocable resignation too," Abete said. "I had already made this decision before the World Cup. The new president of the federation will have my complete support. I'm disappointed as a fan but we gave it our all.
"Prandelli has offered his resignation. When we get back, I will call a meeting with the federation and hope he will withdraw it."