UPDATED 3.23PM: The Madrid government has sacked Catalonia's president and dismissed its parliament, hours after the region declared itself an independent nation in Spain's gravest political crisis since the return of democracy four decades ago.

A new regional election will be held in Catalonia on December 21, Prime Minister Mariano Rajoy said in a televised address on a day of high drama.

As well as removing Carles Puigdemont as head of the autonomous region, he also fired its police chief and said central government ministries would take over the Catalan administration.

"Spain is living through a sad day," Rajoy said on Friday. "We believe it is urgent to listen to Catalan citizens, to all of them, so that they can decide their future and nobody can act outside the law on their behalf."

As he spoke, thousands of independence supporters packed the Sant Jaume Square in front of the Catalan regional headquarters in Barcelona, their earlier joyful mood somewhat dampened by Rajoy's actions.

In a stunning show of defiance of Madrid, the Catalan parliament had voted in the afternoon to make a unilateral declaration of independence.

Despite the emotions and celebrations inside and outside the building, it was a futile gesture as shortly afterwards the Spanish Senate in Madrid approved the imposition of direct rule.

Several European countries, including France and Germany, and the United States also rejected the independence declaration and said they supported Rajoy's efforts to preserve Spain's unity.
The crisis has now reached a new and possibly dangerous level as independence supporters have called for a campaign of disobedience.

Immediately after news of the vote, Spanish shares and bonds were sold off, reflecting business concern over the turmoil.

Catalonia held an independence referendum on October 1 which was declared illegal by Madrid and marred by heavy-handed national police tactics to stop it.

Although the referendum endorsed independence, it drew only a 43 per cent turnout as Catalans who oppose independence largely boycotted it.

The independence push has caused deep resentment around Spain. The chaos has also prompted a flight of business from Catalonia and alarmed European leaders who fear the crisis could fan separatist sentiment around the continent.

Catalonia is one of Spain's most prosperous regions and already has a high degree of autonomy.

But it has a litany of historic grievances, exacerbated during the 1939-1975 Franco dictatorship, when its culture and politics were suppressed.

It is not certain whether the new election can resolve the crisis, as it could increase the numbers of independence supporters in parliament.

Also unclear is how Rajoy's other measures will work on the ground, because of the reactions of civil servants and the regional police, know as the Mossos d'Esquadra, who are reported to be divided in their loyalties.

The main secessionist group, the Catalan National Assembly, called on civil servants not to follow orders from the Spanish government and urged them to follow "peaceful resistance".

In Brussels, the president of the European Council, Donald Tusk, said the independence vote changed nothing and the EU would only deal with the central government.