A police report released last week implicated Socialist heavyweight Santos Cerdán and former transport minister José Luis Ábalos in receiving kickbacks in the improper awarding of public contracts.
The subsequent backlash has created a crisis for Sánchez, who came to power in 2018 promising to clean up Spanish politics after the main conservative Popular Party (PP) was convicted in its own graft affair.
"There is no note, no indication that points to the Socialist party in terms of irregular funding," a sombre-faced Sánchez told a raucous session of parliament in reference to the police report.
Since the report, Cerdán has relinquished his powerful post as Socialist organisation secretary and as an MP, while the party definitively expelled Ábalos.
Sanchez said the party "accepted its responsibility and acted decisively", vowing to continue amid repeated shouts of "resign!" by PP lawmakers that forced the speaker to call the chamber to order on several occasions.
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The premier, one of Europe's longest-serving leftist leaders, has initiated talks with the array of left-wing and separatist groups that are essential for his government's viability in a bid to patch up damaged relations.
He said he was "open" to hearing from other parties so that "the government and my person recover the confidence lost by the citizens".
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