After two days of debate the motion was only backed by Vox's 52 lawmakers, with the remaining 298 voting against, including those of the main conservative opposition Popular Party (PP).
PP leader Pablo Casado had announced earlier that his party's 88 lawmakers would vote against the motion, which he dismissed as “pure populism”.
“We will vote no, because we say no to the divisions that you seek, no to the polarisation that you need,” Casado said during a debate in parliament, distancing himself from Vox leader Santiago Abascal.
The motion had piled pressure on the PP, which had to choose between voting against it to maintain its distance from the far right, or abstaining to keep the peace with Vox's electorate.
Founded in 2014 by Abascal, Vox has steadily bled support from the PP, leaving the party in a tricky position of having to choose between a more central position or veering to the right to staunch the flow of voters.
Casado accused Vox — the third-largest force in Spain's parliament — of being the government's “lifesaver”, arguing that the party's hardline position will unite the ruling leftist coalition.
PP leader Pablo Casado speaking during the session on Thursday. Photo: AFP
He called the PP the only “credible alternative” but stressed his “respect” for Vox voters whom he said “do not deserve to be used in a strategy” that makes it less likely that conservative parties will govern.
The situation is complicated for the PP because it governs with the support of Vox in key regions such as Madrid and Andalusia in the south.
During the first day of debate on Wednesday, Abascal savaged Sanchez over his government's management of the coronavirus pandemic, which has claimed more than 34,000 lives and infected just over one million people — the highest number in the European Union.
“Show me one country that has managed this crisis worse (than your government),” he demanded of Sanchez.
This is the fifth no-confidence motion since Spain returned to democracy in 1976.
The last time MPs debated a no-confidence motion was following a huge corruption scandal in June 2018 in a move proposed by the Socialist party which brought down the government of then PP prime minister Mariano Rajoy.
That no-confidence motion won the backing of the hard-left Podemos party, along with Basque and Catalan separatist factions, allowing Sanchez to take over as head of government.
Since January, Sanchez has been at the head of a leftwing coalition of his Socialists and Podemos, which has a minority of 155 seats in the 350-seat parliament.