The company, a symbol of the excesses that led to the country's property sector collapse, said in a regulatory filing that its board had decided on the move after failing to win support from banks for its latest debt repayment plan.
Martinsa Fadesa, a builder of homes, malls and golf courses which is active mainly in Europe, said Friday it holds assets worth €2.4 billion ($2.7 billion) to meet debts worth €7.0 billion, making its collapse one of the biggest bankruptcies in Spanish history.
The company sought voluntary creditor protection in July 2008 after it failed to get a loan to refinance its debt and became the first major casualty of the crisis in Spain's housing market.
It spent almost three years under creditor protection before reaching an agreement with its lenders in March 2011.
As part of the accord, the company agreed to make annual debt payments for eight years and sell assets, but it has struggled to make payments.
The company had until February 26 to reach a new accord with its lenders, but 75 percent of its creditors declined its proposal, according to Spanish media reports.
Banco Popular, Abanca, Caixabank and Spain's so-called "bad bank" Sareb, which was set up to cleanse Spain's rescued banks of their soured property loans and real estate, all rejected Martinsa Fadesa's plan, the reports said.
"These institutions should not be affected since they have already made large provisions and set up bodies to manage assets," said Pablo Kindelan of global real estate consultancy Pablo Kindelan.
Martinsa Fadesa was formed in 2007, at the height of Spain's property boom, through Martinsa's debt-financed takeover of Fadesa for over €4.0 billion, which created one of Spain's largest real estate firms.
The following year, Spain's decade-long property bubble collapsed due to rising interest rates, more restrictive lending standards and oversupply.
Spain, the eurozone's fourth-largest economy, plunged into recession when the property bubble burst, forcing the government to bail out the financial system and enforce austerity measures that left one in four workers nationwide unemployed.
Like Martinsa Fadesa, several other large real estate firms have declared bankruptcy in recent years, such as Sacresa, which was saddled with €1.8 billion in debt, and Reyal Urbis, which drowned under a debt pile of over €3.6 billion.
But analysts said it could be the last major insolvency of a property firm as a result of the 2008 property bubble collapse.
Spanish home sales increased last year for the first time since 2010, adding to signs that the property market is recovering from the worst recession in the country's democratic history.
Transactions rose by 2.2 percent from a year earlier to 319,389 units, according to figures from the National Statistics Institute.
While home prices fell 2.7 percent last year, taking them to almost 42 percent below their peak in 2007, according to Spain's largest home appraiser Tinsa, prices are rising in major cities such as Madrid and Barcelona along with demand.
The renewed interest in Spanish property was underscored in June when China's richest man, Wang Jianling, bought a historic Madrid skyscraper, the 25-storey Edificio Espana or Spain Building, which has stood empty for years.
He paid Spain's biggest bank Santander €265 million for the building.
The news that Martinsa Fadesa will seek liquidation "does not represent the situation of the market right now, it is more of an echo of another era," said Kindelan.
"The market has changed course, like the rest of the economy, with the arrival of more liquidity. The situation is still fragile and unequal, depending on the region and the sectors," he added.