His funeral will take place on Thursday in the Portuguese capital.
"A friend, a fellow traveller, a man who lived with passion and rage, a European intellectual, a great writer, has abandoned us," his Italian publisher Feltrinelli said in a statement.
Tabucchi, whose many works include "Indian Nocturne" and "Tristano Dies" and who has been translated into 40 languages, was also a professor who specialised in Portuguese literature.
"He was not only an intimate friend of Lisbon and Portugal, and a friend of our literature... he was the most Portuguese of all Italians, a dear author for Portuguese readers," said Portugal's culture secretary Francisco Jose Viegas.
An editor with a French publishing house said Tabucchi died in hospital surrounded by family members after suffering widespread cancer that was only discovered during an operation on his hip two weeks ago.
Best known in Italy for his relentless criticism of Berlusconi, Tabucchi invented an obese Catholic journalist who joined the struggle against fascism in Portugal under Salazar in his 1994 novel "Pereira Declares".
The work became a touchstone not only for freedom of information activists throughout the world but also for Italians opposed to Berlusconi's entry into politics the same year.
"Today is a sad day, a day of mourning for us all. With the death of Antonio Tabucchi we lose a great intellectual, a refined writer," said Antonio Di Pietro, leader of the opposition party Italy of Values.
Senate vice-president Vannino Chiti said he mourned the "painful loss" of a man who had left behind a "precious heritage" of literary work.
Tabucchi, several of whose novels have been adapted for the cinema, favoured simple writing revolving around ordinary people whose lives are transformed by travel, chance meetings or internal doubts.
"I've always been drawn to tormented people full of contradictions," he once told the UNESCO Courier magazine.
"The more doubts they have the better. People with lots of doubts sometimes find life more oppressive and exhausting than others, but they're more energetic. I don't go for people who lead full and satisfying lives."
Born September 24, 1943, in Pisa the year before Allied bombs fell on the city, Tabucchi was the only son of a horse trader.
He studied literature and philosophy in Tuscany before travelling through Europe in the footsteps of his favourite authors.
While in Paris he picked up a collection of poems by Portuguese poet Fernando Pessoa including "The Tobacco Shop". That kicked off his lifelong love affair with Portugal, where he met his wife.
While maintaining a home in Portugal, Tabucchi returned to Italy where he taught Portuguese language and literature in Bologna and translated Pessoa's works.
His first novel, "Piazza d'Italia" (1975), was, however, a return to his roots, exploring Italy's history through three generations of Tuscan anarchists stretching from Garibaldi's time to World War II.
Several other works followed, including "The Edge of the Horizon" -- in which a morgue employee desperately tries to identify a cadaver no-one is interested in -- before Tabucchi scored his first critical success outside Italy with "Indian Nocturne" in 1984.
The short novel, which won France's Medicis Prize for foreign works, relates a man's search for a lost friend in India that turns into a voyage of personal discovery.
"Pereira Declares," Tabucchi's second novel in Portuguese following "Requiem," established the writer's literary anchor in his home away from home.
"In a novel, my feelings and sense of outrage can find a broader means of expression which would be more symbolic and applicable to many European countries," said Tabucchi, a founding member of the International Parliament of Writers.
His last faculty position before retiring was as professor of Portuguese language and literature at the University of Siena in Italy.
Tabucchi also contributed articles to Italy's Corriere della Sera and Spain's El Pais.
He never missed an occasion to criticise Berlusconi, whether in commentary or in fiction.
In "Tristano Dies" (2004), Tabucchi slammed the right-wing leader through the story of a dying old man who entrusts his life to a friend.
"Democracy isn't a state of perfection," Tabucchi said. "It has to be improved, and that means constant vigilance."
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