Prime Minister Pedro Sánchez had tried to entice the far-left United We Can party into a government coalition, but the rivals failed to agree on how to divide up Cabinet posts and other powerful positions.
"I must say that between parties of the left, the forming of a government should have been guaranteed from the first day," Sánchez said. "The deal has not been possible. I lament the historic opportunity that is slipping away."
Sánchez received backing from the chamber's 123 Socialist members and one lawmaker from a marginal regional party, while 155 lawmakers voted "no." There were 67 abstentions. Lawmakers now have until Sept. 23 to break the deadlock or Spaniards will be called back to the polls for the second time in seven months, and the fourth time since 2015. New elections would be in November.
Pablo Iglesias, leader of United We Can, made a last-gasp offer to trade his support in exchange for control of policies to fight unemployment. That was met by groans from Socialist members who considered the offer as coming far too late. In the end, United We Can's 42 members abstained.
"I aspire to have a government but not one at any price," Sánchez told Iglesias, who slouched and scowled. Spain alternated between stable governments led by the Socialists or the conservative Popular Party until the emergence of United We Can and other parties following the global recession a decade ago that hit the country hard.
In 2016, Iglesias' party also held the key to Sánchez' chances of becoming prime minister following an inconclusive election, only to sink his candidacy and force a new election that led to conservative Mariano Rajoy retaining power.
Sánchez moved into the Moncloa presidential palace one year ago and kept a government afloat until his spending bill was killed in February. His Socialists won the most votes in April 28 elections. On Tuesday, Sánchez failed on his first chance to get Parliament support, falling well short of an absolute majority.
The bar lowered on Thursday when he only needed more "yes" than "no" votes. But the blame game between the Socialists and their anti-austerity rivals, who share similar social welfare priorities, started even before the vote.
The session descended into bickering over which ministries each party would control. "Do you believe that you have dealt with us with the respect that a possible partner in government deserves?" Iglesias snapped at Sánchez.
Spain's Constitution stipulates that King Felipe VI will call another round of talks with the leaders of the parties in the lower chamber and suggest a candidate who can try to forge a government. Sánchez could try again during the next two months given that the three parties on the right can't reach a majority by themselves.
But even if United We Can can be brought on board, Sánchez still would require the help of other, smaller parties. "The only question is for how long, for how many months, how many years, will all the parties of the left regret this day?" Republican Left spokesman Gabriel Rufián said.
Wilson reported from Barcelona. Barry Hatton from Lisbon, Portugal, contributed.