The GDP growth figure, the same as that of 2015, is one of the best among European countries.
According to the last available statistics on Eurostat, the eurozone average stood at 1.7 percent year-on-year in the third quarter.
Spain's growth was boosted by low petrol prices, high domestic demand as unemployment drops, exports and a booming tourism sector that beat all records in 2016.
The eurozone's fourth largest economy posted 0.7 percent growth in the last quarter of 2016 compared to the previous quarter, Spain's National Statistics Institute said.
This represents its 13th consecutive quarter of growth since the end of 2013.
This seals the country's return to form after a devastating crisis sparked by the bursting of a property bubble in 2008.
But according to official estimates, Spain's GDP growth is expected to slow in 2017 to around 2.5 percent.
Spain also has to tackle its high deficit of 4.6 percent, which it has promised to reduce to 3.1 percent this year, in line with EU demands.
And while unemployment continues to drop, it still stands at 18.6 percent, well above the eurozone average and the second worst performer in the European Union after Greece.