Prandelli stepped down in his post-match news conference.
“Above and beyond, at the end of the match, I spoke to the president of the federation, and because the technical plan is under my responsibility, I have told them that I am going to resign from my position because when the technical plan and strategy fails, it is only fair for the person in question to take responsibility,” Prandelli said.
“Before the renewal of my contract, there was a will. A will to continue and go ahead along an avenue, which over the past four years, has led us to somehow contain the problems of Italian football.
Italy won their first game in Brazil against England, but then lost to eventual Group D winners Costa Rica last week and were eliminated following their defeat to Uruguay.
The former Roma and Fiorentina coach, Prandelli replaced Marcello Lippi as coach following the 2010 World Cup. He took Italy to the final of Euro 2012 where he was praised despite an eventual 4-0 final defeat to Spain.