The vote of no confidence came after 29 former members of Mr. Rajoy's conservative Popular Party were convicted of corruption last week.
Spain’s parliament has passed a vote of no confidence on its Prime Minister, Mariano Rajoy, following a corruption allegation against his party.
Rajoy therefore becomes the first Prime Minister to lose such vote since Spain transitioned to democracy in 1977.
The vote of no confidence came after 29 former members of Mr. Rajoy's conservative Popular Party were convicted of corruption last week.
Spain's National Court found bribes were offered to former Popular Party officials in exchange for public contracts.
The party also received a hefty fine as a beneficiary of the kickbacks-for-contracts scheme.
Mr Rajoy became Spain's first sitting prime minister to stand witness in a trial over the corruption cases, believed to have taken place between 1999 and 2005, and many called for him to resign.
Speaking on the corruption allegation, Mr. Rajoy said that the accusations concern only a tiny number of politicians and no current members of government.
“The PP has had corrupt people, I acknowledge it, but the PP is not a corrupt party,” he said.
The no-confidence vote will hand power to the opposition Socialists, led by Pedro Sanchez, thanks to a narrow majority they hold in the 350-lower seat house.
Mr Rajoy, who was one of Europe's longest-serving leaders, told the Spanish parliament he was proud of his record.
“It has been an honour to leave Spain better than I found it,” he said. “Thank you to all Spaniards and good luck.”