* Letta expected to win confidence vote in both houses
* PM promises to overhaul parliament and voting law
* Government aims for 2 percent economic growth in 2015
By James Mackenzie
ROME, Dec 11 (Reuters) - Prime Minister Enrico Letta called on parliament on Wednesday to back his government or risk chaos as he sought to push through long-avoided reforms intended to revive Italy's economy after two years of recession.
Opening a debate in the lower house before his third confidence vote since October, Letta said Italy had avoided reforms for 20 years and could no longer afford to delay, with protests across the country this week underlining the bitter public mood after years of painful attempts to squeeze costs and boost revenues.
"I will do everything I can. I won't give in to those who say the chaos is too much and we can't do anything," he said, pledging to combat a growing tide of political disillusion and hostility to the European Union.
Letta pledged to fight "like a lion" but the problems he faces include youth unemployment running at more than 40 percent. The economy is now smaller than it was more than a decade ago and obstacles range from rampant corruption and a discredited political system to a level of tax evasion which the head of Italy's tax authority said this week was incompatible with a democratic state.
As Letta spoke, police had shut down parts of Rome with hundreds of protestors gathering near parliament, shouting "Thieves! Thieves!".
He said the next 18 months would be devoted to a broad package of institutional reforms aimed at creating a stable basis for economic growth which he said should reach 1 percent in 2014 and 2 percent in 2015.
As well as a new electoral law and measures to untangle the conflicting web of powers between different levels of the administration, he promised to overhaul parliament to remove the Senate's power to vote no confidence in the government.
The upper house would become a review chamber linked to the regions instead of an exact counterweight to the lower house, removing a major cause of stalemate in Italy's political system.
On the economic front, he gave little detail but promised to cut Italy's public debt, the second highest in the euro zone as a proportion of the overall economy. In addition, he would lower taxes on families and companies, reduce unemployment and boost public investment, with a package of measures to attract foreign investment due to be approved by cabinet on Friday.
Many of these goals echoed those made when he took office in the spring, but so far a quarrelsome ruling coalition has hindered progress.
He promised privatisations and said the government would consider allowing employees to buy shares in the postal service and other public companies.
Letta called the confidence vote to confirm his majority after Silvio Berlusconi, now banned from parliament, ended seven months of cooperation with the centre-left by pulling his Forza Italia party out of the coalition.
After a stormy debate in which Letta clashed repeatedly with members of the anti-establishment 5-Star Movement, the vote in the lower house is expected before 1500 GMT, with the Senate due to vote in the evening.
Letta, whose centre-left Democratic Party (PD) holds a strong lower house majority, is expected to win the vote in both houses with the help of Interior Minister Angelino Alfano's New Centre Right and a smaller centrist group.
Letta has said he expects the government to survive until at least 2015 but his task has been complicated by Sunday's election of the 38-year-old Matteo Renzi as head of the PD.
Renzi, the ambitious young mayor of Florence expected to lead his party into the next election, has said he wants to set his stamp more clearly on the government's agenda and some believe he would like to push for an election more quickly.
However a source in Renzi's inner circle said after the speech that the two centre-left leaders were in accord over the next steps. "Letta's fine like that, it's what we'd agreed," the person said.
Letta said a formal coalition pact setting out the priorities for 2014 should be prepared in the next few weeks but the government had become stronger since Berlusconi moved to the opposition benches.
The government has already won two confidence votes in parliament with his reduced majority, most recently over the 2014 budget law, still working its way through parliament and requiring approval before the end of the year.
Italy has enjoyed a respite from the financial market tensions that have plagued it in recent years, with the main barometer of market confidence, the difference between yields on Italian 10-year bonds and safer German Bunds, falling to its lowest level in more than two years this week.
On Tuesday, national statistics agency Istat reported a rise in industrial output for October and revised third quarter gross domestic product to show zero growth after two years of steady decline.
However, the protests by a loose movement led by farmers and truckers in many Italian towns and cities this week have underlined public anger over the policies imposed to improve public finances and keep them within European Union rules.