King Felipe VI has decided "not to engage in further consultations yet with party representatives, so they can implement the steps they consider necessary" to end the impasse, the speaker of the parliament, Ana Pastor told reporters after meeting the monarch.
Acting Prime Minister Mariano Rajoy, the leader of the conservative Popular Party (PP), lost two parliamentary confidence votes last week in his bid for a second term, deepening the nation's political crisis.
Party leaders now have until October 31st to explore alternative alliances.
If their efforts come to nothing election-weary Spanish voters will be asked to return to the polls in December for the country's third election in a year.
Spain has been without a fully-fledged government for more than eight months after voters elected a fragmented parliament in December and then again six months later.
The country's four major parties, none close to a majority in parliament, have been unable to cobble together a governing alliance.
"I am going to continue to try to form a government," Rajoy told a news conference at the Group of 20 summit in China.
"Going to the polls for a third time in a year is very worrying. Everyone here asks me about this, they don't ask about anything else because this is not normal."
Rajoy's PP was the only one of Spain four main parties to win more seats in parliament in June compared with December, racking up 137, though that was still short of the 176 needed for a majority in the 350-strong lower house.
The Socialists, who finished second in the last election in June with 85 seats and hold the balance of power, have staunchly refused to allow Rajoy to form a minority government.
Socialist leader Pedro Sanchez accuses Rajoy of betraying the trust of Spaniards and of burdening the country with austerity and corruption.
Sanchez said Monday he wants to hold talks with all other parties including the PP to try to find a solution to the impasse but would not try to form a government himself.
Centrist upstarts Ciudadanos and new far-left party Podemos have both ruled out backing the Socialists to form a new government.
Spanish media said the parties would likely wait for the outcome of regional elections in the northern regions of Galicia and the Basque Country on September 25th to determine their position in any new round of talks.