The European Commission on Monday ordered Spain to submit a new draft budget with lower deficit estimates to avoid violating the bloc's tough spending rules, in a blow for the government ahead of Spanish elections.
The official warning from Brussels comes ahead of Spain's December 20 general election, in which the economy is expected to be a key issue for the conservative government of Prime Minister Mariano Rajoy.
The Commission, the EU's executive arm, said that Spain's draft budget for 2016 was "at risk of non-compliance" with rules brought in following the global financial crisis, adding that it "invites the national authorities to present an updated draft budgetary plan."
It added: "The Commission expects Spain's headline budgetary deficit to decrease to 4.5 percent this year and to 3.5 percent of GDP in 2016, not meeting the target for Spain to correct the excessive deficit by 2016."
The EU limit for deficits is 3.0 percent of gross domestic product.
Valdis Dombrovskis, EU vice president for the euro, said that Spain had made a "remarkable" turnaround from the crisis but that Madrid "has to stay the course of reforms and responsible fiscal policy."
Speaking in Madrid, Spanish Economy Minister Luis de Guindos said Brussels had warned Madrid in other years that it needed to take additional measures to meet its deficit targets and "Spain always ends up complying" with its goal.
"Brussels always issues warnings, it is its mission and duty, but the Spanish government is convinced that its goal of a deficit of 4.2 percent this year will be met and that will put the 2016 budget within reach of lowering the public deficit to 3.0 percent," he added.
Blindsided by the debt crisis, Spain implemented unprecedented austerity measures to reduce its budget deficit which sparked noisy street protests and caused its support to slump.
From 10.6 percent in 2012, the deficit fell to 5.8 percent last year.
The Commission predicts the Spanish economy will grow by 3.1 percent in 2015 and by 2.7 percent next year -- less than the 3.3 and 3.0 percent forecast by the Spanish government.
European Union governments have to submit their budget plans to the bloc's authorities by October 15.
Spain sent its budget well in advance, to give time for the Spanish parliament to vote on the plan before it is dissolved ahead of the general election in December.
The European Union introduced new and stricter fiscal rules after the eurozone debt crisis that give the Commission more power to oversee the bloc's economies and ask governments for changes in their budgets.
Spain's ruling conservative Popular Party (PP) enjoys an absolute majority in parliament but a poll published Sunday shows it is running neck-and-neck with the main opposition Socialist Party.
The PP has 23.5 percent support, the Socialists 23.4 percent with new centre-right party Ciudadanos with 21.5 percent support, making it a potential king maker, the poll published in El Pais showed.
Far-left party Podemos, which wants to loosen the grip of austerity introduced by Rajoy's government after it came to power in 2011, came in fourth place with 14.1 percent.