The country voted against constitutional reform which would have removed power from the Senate and left the Lower House as the key legislative chamber. The vote became as much about prime minister Matteo Renzi's popularity given he has stuck by his promise to resign in the event of a 'no' vote.
Nicola Mai, head of European sovereign credit research at Pimco, said the tail risk to this result was that sentiment deteriorates significantly towards Italian banks and infects other Italian and European risk markets.
"The referendum outcome makes the recapitalisation of Monte dei Paschi harder to achieve, with potential negative knock-on effects on the rest of the system and in particular on Unicredit's equity raising plans," she said.
Shares in Italian banks have been under pressure in the run-up to the vote and Monte dei Paschi di Siena, UniCredit and Banca Popolare di Milano are all down today.
But slightly counter-intuitively, the euro has stimied losses while yields on Italian 10-year bonds have also retraced some of their losses.
Ms Mai said it was now likely president Sergio Mattarella would now institute a transition government tasked with leading the ongoing bank recapitalisations and reforming the current electoral law, which could lead to an electoral system likely to be "proportional in nature and facilitate the formation of grand coalition governments in future".
This potential political outcome was also welcomed by Philip Dicken, head of European equities at Columbia Threadneedle Investments.
"This could all be a blessing in disguise," he said.
"Had the vote gone through, there would have been more chance of an all-powerful anti-EU Five Star win at the next election. As it is, the checks and balances remain in Italy and the electoral process (specifically the Italicum law) is likely to be changed to favour a leading coalition, rather than a leading party."
He added the key risk for Italy remained its banking sector which was "under-capitalised and under-profitable".
"The necessary recapitalisation of the banking sector will be made harder by a prolonged period of political uncertainty," he said.
"The first test comes this week, when the architects of Banca Monte dei Paschi Siena's capital-raise must decide whether to push ahead with their plan to raise a further €4bn (£3.37bn) through equity issuance.
"If that deal is pulled, the recapitalisations of a number of other troubled banks may be thrown into question. The recapitalisation of the banks is essential if Italy is to escape its cycle of low growth."
Paul Hatfield, global chief investment officer at Alcentra, part of BNY Mellon Investment Management, said Monte dei Paschi's recapitalisation "may be in jeopardy" which could have "major repercussions" given it is the country's third-largest lender.
"It could go several different ways if the recap doesn't get through, few of which would be viewed positively for euro banks," he said.
"As with all the recent political shocks we've had recently, this will elevate volatility."
He added the European Central Bank was limited to own 33 per cent of a country's debt and it was already up to 26 per cent with Italy, meaning it may need to address this soon.
Alberto Chiandetti, manager of the Fidelity European Opportunities fund, said it wasn't only Monte dei Paschi in the spotlight.
"The second issue is the upcoming Unicredit capital increase," he said.
"Currently rumoured to be around €10-€13bn, the amount should be disclosed at the Unicredit capital market day on 13 December. A difficult environment for Italian banks will no doubt weigh on this upcoming deal and put pressure on Unicredit shares.
