The decree is expected to split the two lenders' assets into "good" and "bad" banks.
The two Veneto-based banks collapsed after several years of mismanagement and poor lending, and were taken over by the government-sponsored privately backed rescue fund Atlante last year.
"The announcement of definitive steps to resolve the two Veneto banks should be seen as a positive for Italian banks and the broader sector (albeit at a high cost)", said Jefferies analyst Benjie Creelan-Sandford.
At the 11th hour, the Italian government has vowed to rescue two troubled Venetian banks with the aid of a retail bank, plus billions of taxpayers' cash.More news: Trump Wishes Muslims 'Warm Greetings' for Eid
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The two banks' liquidation will include the creation of a "good bank", which will be bought by Italy's leading lender Intesa Sanpaolo, and a "bad bank", which will assume the two banks' bad loans and soured assets.
As reported by the BBC, Italy's government will appoint special administrators for the two ailing banks, which face bankruptcy.
The Italian government would provide state guarantees worth up to €12 billion to cover potential losses at the "bad" bank, Pier Carlo Padoan, the finance minister, told reporters in Rome.
It will have to be voted into law by parliament within 60 days, but in the meantime the banks' branches and employees will be run by Intesa Sanpaolo. That ended months of uncertainty, and failed attempts to raise fresh capital, and forced the Italian government to commence insolvency proceedings and wind them up.
Some European officials have voiced exasperation at the way Italy has dealt with a string of trouble spots in its banking industry, which is weighed down by almost 350 billion euros of soured debts - a third of the euro zone's total.
In early June the European Commission and the Italian government agreed a state bailout for Monte dei Paschi di Siena (MPS) that included big cost cuts, losses for some investors and a pay cap for its top executives. After reviewing their books, the European Central Bank in April said they needed about €6.4 billion of new capital, prompting a search for ways to bridge the gap.