This development reinforces the likelihood of early parliamentary elections, potentially on 14 or 28 April, according to government sources.
In all, 191 lawmakers voted against the budget and 158 in favour, with one abstention.
The outcome of the vote was not in doubt as Catalan lawmakers joined conservative opposition parties in voting against Sanchez's budget.
Six parties represented in the Congress of Deputies submitted amendments to the draft budget. As per Spanish law, voting on these amendments and the entire text of the budget occur simultaneously. If the majority of deputies vote in favour, the proposal is returned to the government. At the same time, the Cabinet of Ministers cannot submit a new draft for approval by Parliament.
The date for the new early elections is not known. Prime Minister Sanchez, leaving the meeting room, refused to shed light on this when asked by journalists.