Baldoni, a 56-year-old freelance journalist who had recently been working for Milan-based news magazine Diario, disappeared August 19 while traveling from south of Baghdad to Najaf, the scene of fierce fighting between U.S.-Iraqi forces and supporters of radical Shia cleric Muqtada al-Sadr.
Days after his disappearance, Baldoni was shown on videotape broadcast by al-Jazeera, an Arab satellite channel.
In the video, members of a group calling itself "the Islamic Army in Iraq" said they could not guarantee his safety unless Italy announced within 48 hours that it would withdraw its 3,000 troops from Iraq. The 48 hours expired Thursday.
Baldoni's death was first reported late Thursday after al-Jazeera said it had received a video showing his execution, just hours after his family made a televised appeal for his release.
Jihad Ballout, a spokesman for al-Jazeera, said the grisly video appeared to show Baldoni's murder, but the channel decided against broadcasting the graphic footage out of sensitivity for his family.
"To the best of our knowledge, it indicates that the hostage-takers carried out their threat," Ballout said.
By Friday morning, Italian officials in Iraq had confirmed Baldoni's murder. The Italian ambassador to Qatar, where al-Jazeera is based, saw an image from the video, which reportedly contained "horrifying pictures," and later informed the Italian government, according to wire services.
He is the first journalist to be executed by hostage-takers in Iraq since the U.S.-led invasion last year.
"There are no words to describe this inhuman act that with one blow wipes out centuries of civilization to bring us back to the dark ages of barbarity," Berlusconi said in a statement.
At the same time, Berlusconi said there would be no change in Italy's stance.
"We will be faithful to the commitments taken with the Iraqi provisional government in the framework of UN decisions to give back peace and democracy to Iraq," he said.
Italy said it would ask the International Olympic Committee for permission for each of its teams in competition Friday to wear a black armband on their uniforms in honor of Baldoni.
Journalists at Diario were stunned by the news of his death.
"We were so optimistic," Gianni Barbacetto, one of the magazine's staff, told AFP. "We couldn't believe he wouldn't get out."
Baldoni was the twelfth journalist this year to be kidnapped in Iraq, according to the New York-based Committee to Protect Journalists, a media rights group.
Most have been freed, but two French reporters -- Christian Chesnot of Radio France-Internationale and Georges Malbrunot of the Paris-based Le Figaro newspaper -- who also disappeared while driving to Najaf last week remain missing.
U.S. journalist and documentary filmmaker Micah Garen was freed by Islamic militants on Sunday, ten days after he was taken hostage in the southern city of Nasiriya.