The US giant said it would close Google News Spain on December 16th before an intellectual property law enters force in January obliging Internet news-gatherers to pay to reproduce content drawn from other websites.
The Spanish culture ministry said it would press ahead with enforcing the law and dismissed Google's announcement as "a matter for the company".
"Despite the suspension of Google News, access to news on the internet will still be guaranteed as it can be found via the news organisations' own websites or web searches," it said in a statement.
"The intellectual property reform does not obstruct freedom of information", it added.
Users of social networks such as Facebook and Twitter are not subject to the law and will not be charged for linking to news content on their pages, it added.
But the president of Spain's Federation of Journalist Associations Elsa González told The Local the introduction of the 'Google Tax' would be damaging digital publications, leading to notable reductions in traffic.
"The government's policy is going to hurt a lot of smaller, journalist-run publications in particular," said González, who lamented the fact journalists and photographers — "those who provide the content for media outlets" — hadn't been consulted during the drafting of Spain's new intellectual property law.
"All the negotiations took place between the government and larger publishers but a lot of journalists are going to suffer because of the current legislation," she said.
"It's a shame that we couldn't reach an agreement on this, and it's also disappointing Google has decided to withdraw its news news service in Spain so quickly. An agreement would have been ideal."
Google's battles in Europe
Google has been in legal conflict for years with European countries including Britain, Germany and France over various issues.
It is accused of taking advantage of its dominant position in the market to avoid paying for content.
Google argues that its news site drives readers to websites and thus helps them generate advertising revenue.
The European Parliament last month approved a resolution calling on the EU to consider ordering search engines to separate their commercial services from their businesses — a move seen as effectively calling for the break-up of Google.
In October a legal battle with publishers in Germany forced Google to remove from its search results news snippets and summaries of articles drawn from news sites.
One of those companies, Axel Springer — publisher of Germany's top-selling daily Bild — capitulated to Google weeks later, agreeing to let it post the snippets for free.
Axel Springer said it could not resist the financial pressure from Google's dominant position in online news.
The Spanish law aims to prevent news companies giving into Google in that way by obliging them to charge it for reproducing their content.
"This new legislation requires every Spanish publication to charge services like Google News for showing even the smallest snippet from their publications, whether they want to or not," Google News director Richard Gingras wrote on a company blog on Wednesday.
"As Google News itself makes no money (we do not show any advertising on the site) this new approach is simply not sustainable."
Users will no longer be able to access many articles in Spanish via Google's hugely popular news page.