If there is no breakthrough two months after Wednesday's parliamentary ballot, vote-weary Spaniards will be asked to return to the polls on December 25 due to the timings set out in Spanish election law.
Rajoy, whose conservative Popular Party (PP) has ruled since 2011, warned Spain's economic recovery could be jeopardised if it once again fails to form a government after two inconclusive elections in December and June.
"Spain needs an effective government, and it needs it urgently," he told lawmakers as he opened a two-day parliamentary debate before a vote of confidence on his proposed second term.
"My proposal is the only real possibility for Spain to have a moderate government, that is not an adventure in radicalism, inefficiency and uncertainty," he said, referring to the option of the Socialists forming a government with new radical-left party Podemos.
The corruption-tainted PP was the largest party in both elections but failed to reach an absolute majority.
To secure a new term, Rajoy needs the support of an absolute majority of 176 lawmakers in the 350-seat assembly in Wednesday's planned confidence vote.
His Popular Party clinched a deal with Ciudadanos, an upstart market-friendly party, as well as with a lone nationalist lawmaker from the Canary Islands, giving him 170 votes – six votes short.
Rajoy therefore needs the support of the Socialists, his traditional rivals, who finished second in the last election with 85 seats. So far they have refused to help him.
If he fails to garner the needed votes, Rajoy will face a second confidence vote on Friday in which he only needs to secure more votes in favour of his government than against, meaning he could only prevail if the Socialists abstained.
The Socialists have been adamant in their opposition to Rajoy, who they blame for corruption scandals tainting the PP and for the steep public spending cuts imposted by his government.
Socialist parliamentary spokesman Antonio Hernando said Rajoy had provided no reason to back him during his address to parliament.
"We have heard the speech of a tired candidate, with an exhausted political project," he said.