Amazon said it "strongly disagreed" with the Italian regulator's decision and would appeal.
Global regulatory scrutiny of tech giants has been increasing after a string of scandals over privacy and misinformation, as well as complaints from some businesses that they abuse their market power.
As well as Amazon, Alphabet's Google, Facebook Inc, Apple Inc and Microsoft Corp have drawn heightened scrutiny in Europe.
Italy's watchdog said in a statement that Amazon had leveraged its dominant position in the Italian market for intermediation services on marketplaces to favour the adoption of its own logistics service - Fulfilment by Amazon (FBA) - by sellers active on Amazon.it.
The authority said Amazon tied to the use of FBA access to a set of exclusive benefits, including the Prime label, that help increase visibility and boost sales on Amazon.it.
"Amazon prevents third-party sellers from associating the Prime label with offers not managed with FBA," it said.
The Prime label makes it easier to sell to the more than 7 million most loyal and high-spending consumers members of Amazon's loyalty program.
The antitrust authority also said it would impose corrective steps that will be subject to review by a monitoring trustee.
Amazon said FBA "is a completely optional service" and that the majority of third-party sellers on Amazon do not use it.
"When sellers choose FBA, they do so because it is efficient, convenient and competitive in terms of price", the U.S. group said in a statement.
"The proposed fine and remedies are unjustified and disproportionate", it added.
The EU Commission said it had cooperated closely with the Italian competition authority on the case, within the framework of the European Competition Network, to ensure consistency with its two own ongoing investigations into Amazon's business practices.
The first was opened in July 2019 to assess whether Amazon's use of sensitive data from independent retailers who sell on its marketplace was in breach of EU competition rules.
The second, in late 2020, focussed on the possible preferential treatment of Amazon's own retail offers and those of marketplace sellers that use Amazon's logistics and delivery services.
"This investigation complements today's decision of the Italian competition authority which addresses Amazon's conduct in the Italian logistics markets," the Commission said on Thursday.
($1 = 0.8832 euros)
(Reporting by Elvira Pollina and Maria Pia Quaglia; editing by Alexander Smith and Jason Neely)
By Elvira Pollina and Maria Pia Quaglia