Sánchez, a telegenic 43-year-old parliamentarian, vowed in his acceptance speech to make the fight against joblessness and corruption the centrepiece of his government if he is elected.
"The years pass and Spanish society continues to face two problems which drain our strength and undermine our social moral. Two challenges which I vow to eradicate: unemployment and corruption," he said before 2,000 party members in Madrid.
Sánchez took the reins of the party in July 2014 after the Socialists suffered their worst-ever election showing in a European Parliament vote, leading the previous leader Alfredo Perez Rubalcaba to step down.
Support for the Socialists has plummeted since they lost power to the conservative Popular Party in the last general election in November 2011 after two terms in office.
The party presided over the early years of Spain's devastating economic downturn which was sparked by the collapse in 2008 of a decade-long property bubble and has struggled to overcome criticism over how their last government handled the economy.
The Socialists were chided by some for responding too late and by others for succumbing too easily to the austerity policies imposed by Brussels which they blame for Spain's jobless rate of 23.8 percent.
The party has lost supporters to two new parties -- anti-austerity party Podemos which is close to Greece's ruling Syriza party and to a lesser extent to market friendly Ciudadanos, which are both expected to make inroads in the next election.
The date of the next election has not been announced, but it is expected to be held at the end of the year.
Polls suggest that it will be a four-way race in which no party wins an outright majority, making post-vote alliance-building necessary.
Political parties in Spain do not always put forward the party chief to lead their election campaign but Sanchez received strong backing from the party as their candidate for prime minister.
Some critics however dismissed Sánchez, who only recently burst into the political limelight, as a lightweight and criticised his willingness to appear on lowbrow television shows.
But he appears to have halted the slide in support for the Socialists.
In a poll published on Sunday in top-selling daily newspaper El Pais, Sánchez came second amongst the most favoured politicians after the leader of Ciudadanos, 35-year-old Albert Rivera.
During last month's regional and local elections, the Socialists came in second place after the Popular Party with 25 percent of the vote.