The people of Catalonia can not accept the "illegal" measures taken by the Spanish government to rule the region directly from Madrid, Catalan leader Carles Puigdemont says.
The move, meant to quash an independence bid led by Catalonia's regional government, follows weeks of division triggered by a banned independence referendum on October 1.
Mr Rajoy said he wants the senate to give him permission to dissolve the regional government in Barcelona and call early elections.
Catalan government number two Oriol Junqueras reacted furiously, posting on his Twitter account: "Today the PP and its allies have not only suspended autonomy, they have suspended democracy".
"There is no country in the world ready to allow this kind of situation within its borders", Rajoy said.
The vice president of the Senate says a session next Friday will vote on the measures.
The article allows central authorities to intervene when one of Spain's 17 autonomous regions fails to comply with the law.
At the national level, Pablo Echenique, a secretary in the far-left Podemos party, vowed to work to oust Rajoy and his conservative Popular Party.
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Under Article 155 of Spain's constitution, Madrid has the power to wrest back control of rebellious regions, but it has never used them before.
"I ask the parliament to meet in a plenary session during which we, the representatives of the citizens' sovereignty, will be able to decide over this attempt to liquidate our government and our democracy and act in effect", Puigdemont said in a televised speech.
Municipal police said 450,000 people rallied on Barcelona's large Paseo de Gracia Boulevard, spilling over onto nearby streets, many holding Catalonia's yellow, red and blue Estelada separatist flag.
"Spain needs to face up to an unacceptable secession attempt on its national territory, which it will resolve through its legitimate democratic institutions", said the king, a ceremonial figure who had criticized Catalan leaders earlier this month.
European Union leaders have backed the Madrid government in its handling of the crisis, which Rajoy insists is an internal matter.
Pro-independence protesters are expected to demonstrate in the center of Barcelona, Catalonia's regional capital, later Saturday.
Catalan leader Carles Puigdemont urged the parliament to appoint a plenary meeting to discuss Madrid's decision to limit Catalonia's autonomy.
As such, Madrid's move could anger even those against independence.
Ninety percent of those who voted approved of independence, according to the regional government. Heavy-handed police tactics to shut down a an independence referendum on October 1 that the government had declared illegal drew criticism from human rights groups. Hundreds of companies have transferred their registered headquarters out of Catalonia to other areas in Spain, fearing the chaos that independence - or the fight over it - could bring.