The 191-158 vote, with one abstention, opened a new crisis in Spanish politics. Members of Sanchez's Cabinet had signaled that a defeat in the budget vote would lead to a fresh general election. The only other time a Spanish government lost a budget vote, in 1995, the Socialists were forced to dissolve the parliament and call an election.
The prime minister's office said Sanchez plans to announce his decision after the weekly Cabinet meeting Friday. Opposition leader Pablo Casado, head of the conservative People's Party, said Wednesday's vote was "a de facto confidence vote against Pedro Sanchez."
Catalan deputies from pro-independence parties had demanded to open talks on the northeastern region's self-determination in exchange for supporting Sanchez's spending proposal, but the center-left minority government rejected the demand.
The socialist party holds only 84 seats in the 350-seat lower house. Its votes and those of the anti-austerity Podemos party weren't enough to counter a majority of center-right, conservative and smaller parties voting in favor of six blanket objections.
Sanchez became prime minister in June when the Catalans joined the anti-austerity Podemos and other smaller parties in backing a no-confidence vote against his conservative predecessor, Mariano Rajoy.
Without parliamentary support, Sanchez's government can't pass significant legislation and would need to prolong Rajoy's 2018 spending plan. That leaves the center-left administration without funds for social policies that are key to retaining Podemos' support.
Sanchez rushed out of the lower house's chamber shortly after the vote, dodging questions by reporters. His finance minister, Maria Jesus Montero, said it made sense for Sanchez's term in office, which normally would end next year, to shortened with the budget rejection — but that it was up to the prime minister himself to decide if and when to call an election early.
"We want elections now," Albert Rivera, leader of the center-right Citizens party, said after the vote. Talks between Sanchez's government and a new separatist coalition that took power in Catalonia after 2017's failed independence push broke down last week when the government refused to accept self-determination talks.
"Sooner or later we will have to negotiate a solution, a democratic solution," said Joan Tarda, a prominent Catalan pro-independence lawmaker. The People's Party and Citizens party, along with members of the emerging far-right party Vox, have urged Sanchez to step down for relying on support from separatist Catalan lawmakers to remain in government.
The trial of a dozen politicians and activists who drove a breakaway attempt in Catalonia in the fall of 2017 opened Tuesday. Their prosecution has angered many supporters of the region's independence from Spain.
On the second day of the politically charged trial, a Supreme Court prosecutor criticized what he said were defense lawyers' attempts to turn the proceedings into an examination of the Spanish state and judiciary.
Prosecutor Javier Zaragoza called the arguments made a day earlier "ridiculous" and "unjustified." Defense lawyers said Tuesday the case was politically motivated and an attempt to eliminate dissent in Catalonia.
The 12 Catalan politicians and activists face years behind bars if they are convicted of rebellion or other charges for having pushed ahead with a unilateral independence declaration that opened an unprecedented political crisis in Spain.
__ AP's coverage of tensions between Spain and its northeastern Catalonia region here: https://apnews.com/Catalonia Follow Aritz Parra on Twitter: @aritzparra