After a special Cabinet session to derail Catalonia's independence movement, Rajoy said he wants the country's Senate to allow central ministers to take over the jobs of all senior members of the Catalan government, including control over the regional police, finances and the public media.
Barcelona resident Rosa Isart said the Spanish government's determination to prevent Catalonia from leaving reminded her of Franco's dictatorship decades ago. "We're just reinstating normality", says @marianorajoy.
Barcelona leads the Spanish LaLiga and hosts Malaga later tonight.
The government's next steps include requesting authorisation from the senate to temporarily dissolve the roles of Catalonia's president, vice president and the advisers of the Catalan government.
He tweeted: "Today more than ever, let's defend democracy and civil and political rights".
Mr Rajoy said he was concerned about the financial impact if Catalonia broke away, stressing the latest figures on the economy were "worrying".
The slow-burning constitutional crisis over secession escalated this month when regional government officials held a disputed independence referendum on October 1.
Basque nationalists and the far-left Podemos party were among those in Madrid opposing the government's move.
The Spanish government will announcing special measures on Saturday to impose direct rule on the wealthy region of Catalonia over its bid to breakaway.
Rajoy's government is activating a previously untapped constitutional article to take control of Catalonia.
The demonstration had originally been called to protest the detention of two pro-independence activists who are awaiting possible sedition charges, but it turned into an outcry over Rajoy's takeover move.
A spokeswoman for Spain's Constitutional Court says the court's website has been affected by a cyberattack of unknown origin.
Accounting for about a fifth of Spain's economic output, Catalonia is roughly evenly split over whether to break away from Spain, according to polls.
Albert Rivera, head of the pro-business Citizens party, said he backed Rajoy's measures because Catalonia needs to restore legal security so companies can remain in the region.
In a YouTube video posted by an account linked to Anonymous, the group announced actions that would be rolled out on Saturday as part of an "Operation Free Catalonia".
The move by the prime minister was the worst attack on the Catalan people since the late Spanish leader General Franco abolished Catalonia's regional government in 1939, Mr Puigdemont claimed.
Rajoy has called an emergency cabinet meeting on Saturday to pave the way for the unprecedented intervention.
"We are here because the Spanish government made a coup without weapons against the Catalan people and their government institutions", said Joan Portet, a 58-year-old protester.
Members of the ruling separatist coalition in Catalonia have rejected the idea of fresh regional elections as a way out to the crisis. In a sign of the deeply entrenched divisions between Madrid and the restive region, he signalled to local politicians that they should press ahead with independence.
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.
Hours earlier, Spanish Prime Minister Mariano Rajoy said he was not asking to "suspend the autonomy or the self-government of Catalonia", but to dismiss the "people who have placed this self-government outside the law".
Article 155 allows for the suspension of a region's autonomy if it does not fulfil its obligations to the state.
Mr Rajoy also confirmed that regional elections would be called, within a period of six months, or "as soon as institutional normality is restored".
Opposition parties have agreed to support him in revoking Catalonia's autonomy.
Mr Puigdemont is expected to make a formal response to the government's measures in a speech later this evening.