Mr Sanchez stood down after losing a vote by the party`s federal committee over supporting the formation of a conservative-led governing coalition - a move he had strongly opposed.
The past week had already seen almost half of the party`s executive resign.
Spain has been in a political limbo for the past nine months.
The results of a general election in December 2015 left a hung parliament. The majority Popular Party (PP) under acting Prime Minister Mariano Rajoy has sought to form a coalition government but Mr Sanchez repeatedly blocked their attempts.
In attempt to break the stalemate, a second election was held on 26 June 2016 but, again, no party won an absolute majority.
The Socialist Party (PSOE) has long been divided between supporters of Mr Sanchez and those who want to end the stalemate by supporting a coalition.
Many delegates at Saturday`s federal committee meeting at party headquarters in Madrid had turned up hoping to force Mr Sanchez out.
On Wednesday, 17 of the 35 members of the PSOE executive resigned in protest at Mr Sanchez`s stance.
Pedro Sanchez: Spanish Socialist leader resigns
02 October 2016
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The leader of Spain`s opposition Socialists, Pedro Sanchez, has resigned, in a move that could end months of political deadlock.
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