"It would be sensible, reasonable and democratic to stop and say, there won't be a referendum, which they know won't happen," Rajoy told members of his conservative Popular Party at an event in the Balearic Islands.
His comments came as a row erupted over the control of police in Catalonia after prosecutors asked Spain's interior ministry to coordinate all forces in operations related to stopping the referendum from taking place on October 1.
Forn tweeted that his department was looking into taking legal action against "this interference from the state."
Madrid has used all the legal arsenal at its disposal to stop the vote from taking place in a region deeply divided over independence.
Catalan leaders, however, say they are still determined to see the referendum through even if they recognise their plans have been seriously hindered.
Prosecutors are pushing for possible sedition charges against leaders of protests in Barcelona on Wednesday.
Madrid has tightened control over the region's finances and the Constitutional Court fined 24 referendum organisers 6,000 to 12,000 euros (USD 7,200 to USD 14,300) a day until they stopped.
These included members of an electoral board set up for the referendum which was subsequently hastily dissolved by the regional government.
And police have seized close to 10 million ballot papers destined for the vote.
All the measures have damaged separatist plans to conduct a referendum with a semblance of legitimacy, even if it was never going to be recognised by Madrid.
On the streets of Barcelona, meanwhile, protests had dwindled today.
Several dozen students were still rallying in a University of Barcelona building in the city centre, but other street gatherings had dissolved.
Polls show Catalans are sharply divided on whether they want independence or not, with the latest survey in July showing 49.4 per cent against and 41.1 per cent in favour.
Despite the divisions, a large majority of Catalans want to vote in a legitimate referendum to settle the matter.
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