Spanish Socialist Party (PSOE) leader, Pedro Sanchez, failed in his second attempt to be named as the prime minister.
He received only 131 votes in favour with 219 votes against in the investiture vote held in the Spanish Congress on Friday, Xinhua news agency reported.
The defeat made Sanchez the first party leader to lose two investiture debates in Spain.
Prime Minister Mariano Rajoy, whose party won 123 seats in the general elections, but turned down the chance to form a new government a month ago, poured scorn on Sanchez's attempt to replace him at the head of government, saying his fiesta had "come to an end".
Leader Pablo Iglesias of Podemos party also criticised Sanchez, but offered the PSOE leader the chance to form a coalition with his left-wing party, saying that although a pact between the two parties was neither's first option, it gave Spain the chance of a "progressive government".
King Felipe VI will hold further talks with party leaders in the coming days in an attempt to find a new candidate, but if no candidate is able to form the government before May 3, Congress will be dissolved and new elections will be called for June 26.
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