Prime Minister Mariano Rajoy insists that Catalan leader Carles Puigdemont, who heads the wealthy northeastern region's government, has broken the law several times in pushing for independence, thus justifying the imposition of central government control.
Rajoy could force the removal of Catalan officials and call early regional elections for as soon as January. He said a new regional election in Catalonia should be held in the next six months.
Catalan government number two Oriol Junqueras reacted furiously, posting on his Twitter account: "Today the PP and its allies have not only suspended autonomy, they have suspended democracy".
"This was neither our desire nor our intention", Rajoy said.
"We are in shock about the suspension of democracy in Catalonia", said Podemo's Pablo Echenique, vowing to work to oust Rajoy and his conservative Popular Party.
The vice president of the Senate says a session next Friday will vote on the measures.
The Spanish government is activating a previously untapped constitutional article to take control of the Catalonia region in a bid to stop a rebellion from separatist politicians.More news: UK Inflation Highest Since 2012
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Municipal police said 450,000 people rallied on Barcelona's large Paseo de Gracia Boulevard, spilling over onto nearby streets, many holding Catalonia's yellow, red and blue Estelada separatist flag.
On Friday, King Felipe VI described Catalonia's recent referendum for independence as an "unacceptable secession attempt" and said the crisis sparked by the region's banned October 1 independence referendum must be resolved "through legitimate democratic institutions".
Activist organizations ANC and Omnium have called on their supporters to rally at 1500 GMT in Barcelona, the region's principal city, in protest at the jailing of their leaders over sedition accusations.
Mr Rajoy was notably scant on details and long on justification for direct rule in his speech, essentially limiting his much-anticipated package of specific measures to a broad-brushed description of the whys and wherefores for his government's substitution of the nationalist ministers.
Catalan leader Carles Puigdemont urged the parliament to appoint a plenary meeting to discuss Madrid's decision to limit Catalonia's autonomy. They then declared that the result - strongly in favor of independence - gave them a legal basis for separating from Spain even though the vote itself had numerous problems.
The country's Constitutional Court has so far ruled against all moves toward secession, including the Catalan referendum. Hundreds of companies have transferred their registered headquarters out of Catalonia to other areas in Spain, fearing the chaos that independence - or the fight over it - could bring.
Catalonia's vice president was one of the first regional cabinet members to react to the announcement that Spanish authorities are seeking to dissolve the cabinet and take control of the prosperous territory.