Catalonia's pro-independence regional government plans to hold a secession vote in the wealthy northeastern region on October 1, in defiance of Spain's central government in Madrid which has repeatedly said such a vote would violate the constitution.
"Not one euro of Catalan money will go to an illegal referendum that is desired by a handful of people," Spanish government spokesman Inigo Mendez de Vigo said.
Spain's central government will tighten its oversight of spending by Catalan authorities by requiring them to provide weekly accounts to show no money is being used to stage the independence vote, he added.
If this obligation is not respected, Madrid will cut off Catalonia's access to a credit line known as the Autonomous Liquidity Fund that provides extra money to Spain's regional governments, Mendez de Vigo said.
The Autonomous Liquidity Fund was set up by Spain's central government in 2012 to lend money to regions that, because of the country's financial crisis, could not issue debt in financial markets.
Catalonia has received €67 billion ($77.5 billion) from the credit line since it was set up, and is expected to collect 3.6 billion euros from it this year, according to Spain's central government.
The government's move was justified because Spain's Constitutional Court ruled earlier this month that clauses in the Catalan's regional government's 2017 budget that set aside money for the referendum were illegal, Mendez de Vigo said.
It comes just two days after Spain's court of auditors announced it would try to hold the former head of the regional government of Catalonia, Artur Mas, and several of his ministers personally accountable for 5.1 million euros that was used to hold a mock independence referendum in 2014.
In March Mas was found guilty of contempt of court for staging to symbolic referendum despite a legal order that it not go ahead, and was barred from public office for two years.
Independence support slipping?
Catalonia, a region of 7.5 million inhabitants with its own language and customs, has long demanded greater autonomy.
Parties that want the region to break away from Spain won a majority of seats in the regional parliament for the first time in 2015 local elections.
Demands for autonomy have been fuelled by Spain's economic downturn, leading many to resent sending tax money to Madrid to prop up poorer regions.
A draft referendum law unveiled earlier this month by the Catalan government says that, whatever the turnout, if those voting in favour outnumber those against, within 48 hours of the vote the regional parliament will declare independence.
The Catalan government has also increased the pressure over the vote in recent weeks by replacing ministers who were seen as not as sufficiently dedicated to the referendum, and appointing a new head of the regional police force, the Mossos d'Esquadra, who vocally supports the vote.
Recent opinion polls consistently show a majority of people in the region are in favour of holding a referendum on secession.
But a new survey published Friday showed support for independence fell to 41.1 percent from 44.3 percent in March -- its lowest level since the separatist campaign gained traction in 2012.
The percentage of people in Catalonia against separation from Spain rose to 49.4 percent from 48.5 percent, according to the poll by the Catalan government's Centre of Opinion Studies.