Prandelli announced at his post-match press conference: "I talked to the president of the federation.. and gave my resignation.
"The technical set-up didn't work, and I take all responsibility for that.
"Something has changed since my contract was renewed. I don't know why. I chose a certain technical plan and that's why I'm resigning - because it did not work."
He steered Italy to the final of Euro 2012 where he was widely praised for his coaching methods despite an eventual 4-0 final defeat to Spain.
Despite a solid defensive performance Italy were put under increasingly pressure following the sending-off of Claudio Marchisio, and an 81st-minute goal from Diego Godin ensured Uruguay advanced to the knockout stages at the Italians' expense.
Prandelli added: "A second European Championship, third at the Confederations [Cup] and the qualification obtained in advance should not be under-estimated.
"The match was well-balanced in equal numbers, but the sending-off changed it all."
Prandelli was not the only man to fall on his sword with president Giancarlo Abete also stepping down.
He said he would recommend that Prandelli changes his mind, but that he himself was going.
"I will go to the board and offer my irrevocable resignation too. I had already made this decision before the World Cup," he said.
- Sports & Recreation