Spanish political parties face what are likely to be tough negotiations to form a government after the country voted in a fragmented Parliament that bade farewell to the dominating two-party scene of recent decades.

The ruling conservative Popular party came first with 123 seats in Sunday's election but fell far short of a 176 majority needed to govern alone.

Incumbent Prime Minister Mariano Rajoy said he will "try to form a stable government'" but faces an uphill climb to gain outside support.

The leading opposition Socialist party came second with 90 seats and could join with other leftist groups.

Socialist leader Pedro Sanchez said Monday that Rajoy's Popular Party had first option to try to form a government, but noted that Spain was "entering a new political phase."