ROME (Reuters) - Italy must continue to work on reforming its economy and consolidating its finances, the International Monetary Fund said on Thursday, as markets showed signs of nervousness about political instability in the euro zone's third largest economy.

"Italy has made important gains on reforms and fiscal discipline - it is important that the gains be maintained," said IMF spokesman Gerry Rice, adding that he would not comment on the country's current political situation.

Italy paid the most in nearly a year to sell three-year paper at auction on Thursday as political tensions persisted in connection with the legal problems of centre-right leader Silvio Berlusconi.

(Reporting By Giselda Vagnoni, writing by Gavin Jones)