"We have agreed to take a step back and leave the government of Catalonia," he told a news conference.
The UDC has been allied with the larger Democratic Convergence of Catalonia (CDC) since 1978.
Their Convergence and Union (CiU) electoral alliance has ruled Catalonia since 2010 but in recent years tensions have emerged over the alliance's transformation into a starkly pro-separatist party under regional president Artur Mas.
Mas, who belongs to the CDC party, is planning to call a regional election in Catalonia on September 27 meant as a proxy vote on independence from Spain.
If pro-independence parties win a majority, the new Catalan government that emerges will start to negotiate independence with Madrid.
The aim would be for the negotiations to be concluded in 18 months, and pave the way for a binding independence referendum in 2016.
But the UDC, which is traditionally more moderate on independence, has taken a more cautious approach.
Party members voted on Sunday in favour of an alternative "road map" calling for dialogue with Madrid and for respect for the law, which prevents regions from holding independence referendums.
"This decision is not a break up of the electoral alliance, it is a question of being coherent with what our members voted for," said Espadaler.
Catalonia is home to 7.5 million people and accounts for a fifth of Spain's economy.
Proud of their distinct language and culture, many Catalans say they get a raw deal from the way their taxes are redistributed to the rest of Spain.
But they are split on the issue of independence, and there are signs that support for it is waning.
For the first time since June 2011, the Catalan regional government's own opinion survey in February indicated more Catalans saying "no" to independence than those backing it -- 48 percent against 44 percent.