The decision is set to trigger a vote for June 26th
Spanish voters are set to go to the polls for a second time in four months after political parties there failed to form a government.
The Spanish King Felipe VI announced his decision after spending the last two days meeting with party leaders.
The leader of the PSOE party, Pedro Sánchez, says the king decided that no party had sufficient votes to form a new Cabinet.
In a statement, the Spanish royal family say the King has informed the president of the parliament Patxi López-Álvarez.
Mr Álvarez will now not be asked to propose a candidate for prime minister, the statement adds.
The decision looks set to trigger a new election for June 26th.
Spain has been politically paralysed since its general election on December 20th last year.