Spain's Prime Minister Mariano Rajoy has threatened to suspend Catalonia's regional autonomy

Madrid (AFP) - Spain threatened on Wednesday to suspend Catalonia’s autonomy if it follows through on its threat to break away as an independent country in the biggest challenge to Spanish unity in a generation.

Prime Minister Mariano Rajoy has vowed to do everything in his power to prevent Catalan secession following a banned referendum in the region, which remains deeply divided over independence.

He held an emergency cabinet meeting after Catalonia’s president Carles Puigdemont announced on Tuesday that he had accepted the mandate for “Catalonia to become an independent state.”

In a step towards possible action by Madrid, Rajoy asked the Catalan leader to clarify whether he had actually declared independence, which could trigger moves by Madrid to suspend the region’s semi-autonomous status.

The Catalan crisis is Spain’s most serious political emergency since its return to democracy four decades ago.

World leaders are watching closely and uncertainty over the fate of the region of 7.5 million people has damaged business confidence.

- Madrid rejects mediation -

Puigdemont said the referendum had given him a mandate for independence but immediately asked regional lawmakers to suspend the declaration to allow for negotiations with the central government.

Rajoy has said he will not negotiate on anything until the separatists abandon their independence drive, and rejected calls for mediation in the crisis.

“There is no mediation possible between democratic law and disobedience, illegality,” he told parliament on Wednesday.

The cabinet agreed “to formally ask the Catalan government to confirm whether it declared independence,” he said earlier.

“The answer from the Catalan president will determine future events, in the next few days.”

Catalan leader Carles Puigdemont's speech to parliament was watched by crowds on a television screen in Barcelona

Rajoy could choose to trigger constitution article 155, which allows Madrid to impose control over its devolved regions – an unprecedented move many fear could lead to unrest.

The leader of the opposition Socialist Party, Pedro Sanchez, backed Rajoy’s demand for clarification in order to “get out of the swamp”.

He said his party and the government had agreed to “open the road to constitutional reform” in light of the Catalan crisis.

The debate would focus on “how Catalonia remains in Spain, and not how it leaves,” Sanchez told reporters.

- ‘Destructive force’ -

A declaration of independence signed by Catalan leader Carles Puigdemont and separatist lawmakers is merely a "symbolic act," the regional government says

While separatist leaders say 90 percent of voters opted to split from Spain in the October plebiscite, less than half of the region’s eligible voters actually turned out.

The drive to break Catalonia away from Spain has raised concern for stability in a European Union still coming to terms with Britain’s shock decision to leave the bloc.

The EU on Wednesday urged “full respect of the Spanish constitutional order,” with European Commission vice-president Valdis Dombrovskis saying the bloc was following developments “closely”.

Crowds of thousands gathered outside the parliament building in Barcelona on Tuesday ahead of Puigdemont’s speech, waving Catalan flags and banners and screaming “democracy” in the hope of witnessing history in the making.

A declaration of independence signed by Catalan leader Carles Puigdemont and separatist lawmakers is merely a "symbolic act," the regional government says

But reaction among separatists in Catalonia was mixed.

Barcelona resident Maria Rosa Bertran said she was against a delayed secession, which meant “suffering a longer agony. Indecision and uncertainty is the worst thing that can happen to us,” she told AFP.

Puigdemont insisted Wednesday that “the majority of Catalan people want Catalonia as an independent state.”

“The relationship between Catalonia and Spain does not work,” he told CNN, repeating his call for talks “without preconditions” with Madrid.

Madrid stocks rallied Wednesday, with the capital’s benchmark IBEX 35 index of top companies up 1.2 percent. The euro also rose to $1.1845.

- Unknown consequences -

Following his declaration to parliament, Puigdemont and his allies signed an independence declaration outside the chamber, but its legal validity was unclear.

Regional government spokesman Jordi Turull said the declaration was “a symbolic act”, adding that any official declaration would need to be decided by the Catalan parliament.

“I did not expect independence to be declared today because of all the processes that the government of Spain has begun, both with police actions and with threats,” said Barcelona student Marc Cazes.

Police violence against voters during the referendum vote sparked international concern an turned many Catalans against the central government.

- Business jitters -

The crisis has caused deep uncertainty for businesses in one of the wealthiest regions in the eurozone’s fourth-largest economy.

A string of companies have already moved their legal headquarters – but not their employees – from Catalonia to other parts of the country.

Catalonia, which accounts for about one-fifth of Spain’s economic output, already enjoys significant powers over matters such as education and healthcare.

But Spain’s economic strains during the world’s financial crisis, coupled with resentment that the region pays more in taxes than it receives in investments and transfers from Madrid, have helped push the cause of secession from the fringes of Catalan politics to centre stage.

Catalan demands for sovereignty date back centuries. In 1934 regional president Lluis Companys declared a “Catalan state” but surrendered 10 hours later to the Spanish army.