Anyone living in Lombardy and 14 other central and northern provinces will need special permission to travel. Milan and Venice are both affected.
The measures, the most radical taken outside China, will last until 3 April.
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Italy has seen the largest number of coronavirus infections in Europe, with the number of confirmed cases jumping by more than 1,200 to 5,883 on Saturday.
The strict new quarantine measures affect a quarter of the Italian population and centre on the rich northern part of the country that powers its economy.
The health system is under immense strain in Lombardy, a northern region of 10 million people, where people are being treated in hospital corridors.
“We want to guarantee the health of our citizens. We understand that these measures will impose sacrifices, sometimes small and sometimes very big,” Prime Minister Conte said as he announced the measures in the middle of the night.
Under the new measures, people are not supposed to be able to enter or leave Lombardy, where Milan is the main city.
“There will be no movement in or out of these areas, or within them, unless for proven, work-related reasons emergencies or health reasons,” Mr Conte told reporters.
“We are facing an emergency, a national emergency. We have to limit the spread of the virus and prevent our hospitals from being overwhelmed.”
Weddings and funerals have been suspended, as well as religious and cultural events. Cinemas, night clubs, gyms, swimming pools, museums and ski resorts have been closed.
People have been told to stay at home as much as possible, and those who break the quarantine could face three months in jail. Punch