It is not yet clear exactly what Madrid will do in Catalonia or when. It is possible that the central Government will take over regional ministries, including the police force and Catalan public broadcasters.
Rajoy insisted that Madrid was not seizing control of Catalonia, merely demanding new leadership.
"There is no country in the world ready to allow this kind of situation within its borders," Rajoy said at a press conference. "This is not a suspension of home rule but the dismissal of those who lead the regional government."
The regional President Carles Puigdemont made an address on Catalan TV in Catalan, Spanish and English.
"We cannot accept these attacks," he said. "Those who have scorned the Catalans now want to govern us. I will ask parliament to decide how to respond to these attacks on democracy and to act accordingly."
Puigdemont called Rajoy's move the "the worst attack" on Catalan people and institutions since General Francisco Franco's abolishment of Catalonia's regional government in 1939.
The separatists in Catalonia, led by Puigdemont, staged a chaotic referendum this month despite the fact that the courts had declared it unconstitutional. More than two million people ultimately cast ballots for independence, though the turnout for the referendum was just around 40 per cent of eligible voters.
In a speech shortly after the October 1 vote, Puigdemont first declared independence but then "suspended" the secession process, saying that Catalonia was willing to begin talks with the central Government.
Catalonia's calls for the European Union to mediate the dispute have not been answered, with most continental leaders backing Madrid.
Rajoy vehemently disputed the notion of "dialogue" with a movement his Government still considers outside the rule of law. Puigdemont "was invited to discuss his position in the Spanish parliament, but he refused," Rajoy said. "He was invited to the conference of regional presidents, and he didn't want to go. Dialogue is not that others have to accept a decision you already made. It is not imposing your decision to break the law."
Rajoy said he was "forced to act" to preserve Spanish unity. "It simply cannot be, in today's Europe, that there is a country where the law is not observed."
Catalonia, with its own language and culture, already enjoys considerable autonomy, with control of its own health care, education and regional police.