Prime Minister Mariano Rajoy has vowed to do everything in his power to prevent the region's independence in a dispute that has hurled Spain into its deepest political crisis in decades.
He has refused to rule out imposing direct rule over the semi-autonomous region - a move many fear could lead to unrest.
Rajoy called an emergency meeting after Catalonia's president Carles Puigdemont announced yesterday that he had accepted the mandate for "Catalonia to become an independent state" following a banned referendum earlier this month.
Today, a government source who refused to be named said "all options" were on the table as the crisis talks were under way.
At stake is the future of a region of 7.5 million people deeply divided over independence, one of Spain's economic powerhouses, whose drive to break away has raised concern for stability in the European Union.
Crowds of thousands gathered outside the parliament building in Barcelona yesterday evening, waving Catalan flags and banners screaming "democracy" in the hope of witnessing a historic night in a region that remains deeply divided over independence.
The government stuck to its stance that it would not accept mediation or any talks until Catalan leaders drop their independence bid.
"Mr Puigdemont - no one - can expect to impose mediation without returning to legality or democracy," Deputy Prime Minister Soraya Saenz de Santamaria told reporters.
She said Puigdemont was "a person who doesn't know where he is, where he's going or with whom he wants to go".
Barcelona resident Maria Rosa Bertran said she was against a delayed secession.
Following his declaration to parliament, Puigdemont and his allies signed an independence declaration outside the chamber, but its legal validity was unclear.
Spain and Catalonia now enter into the unknown, as Madrid has repeatedly said independence is not up for discussion.
Catalonia pressed ahead with an independence referendum on October 1 that the central government said breached Spain's constitution.
Spanish police cracked down on the polls, beating some voters as they closed down polling stations.
Around 90 per cent of those who cast ballots voted for independence but the poll was poorly monitored and many Catalans opposed to secession boycotted it.
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.
The stand-off has also put strain on the euro.
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