A Spanish judge ruled Wednesday that King Felipe VI's sister, Princess Cristina, and her husband should face graft charges, opening the way to an unprecedented criminal trial.
Six days after Felipe, 46, took the Spanish throne promising an "honest and transparent" monarchy, the decision refocused attention on a scandal that had blighted the reign of his 76-year-old father Juan Carlos.
Cristina, 49, once considered untouchable, is accused of tax and money laundering crimes linked to the allegedly dodgy business affairs of her husband, 46-year-old former Olympic handball player Inaki Urdangarin.
But Cristina's lawyers and the anti-corruption prosecutor announced immediately they would appeal the investigating judge's decision to pursue charges against the princess.
"The basis of this appeal is that there is no crime. There is no evidence of crime, and that is the same thing that the tax office and the prosecutor say," the princess's lawyer, Miquel Roca, told journalists.
A royal palace spokesman expressed "full respect for judicial decisions" but declined further comment to AFP.
A final decision on whether to put the suspects on trial is expected to be taken by the Palma de Mallorca provincial court.
If the investigating judge's findings are upheld, Cristina would be the first direct relative of the Spanish monarch in history to stand in the dock as a criminal defendant.
The judge, Jose Castro, has delved into allegations that Cristina's husband and a former business partner creamed off 6 million euros ($A9 million) in public funds from contracts awarded to a charitable foundation, Noos.
Cristina sat on the board of Noos and Urdangarin was its chairman.
Together with her husband, the princess jointly owned another company, Aizoon, which investigators suspect served as a front for laundering embezzled money.
In February this year, the investigating judge grilled Cristina in a six-hour hearing over accounts indicating the use of money from Aizoon for personal expenses, including work on the couple's Barcelona mansion, dance lessons and Harry Potter books.
But the princess, a mother of four with a master's degree from New York University, said she had simply trusted her husband and had no knowledge of his business affairs.
In his 167-page ruling wrapping up four years of investigations, the judge said that in regard to Urdangarin's alleged tax crimes: "It would be difficult to have committed them without at least the knowledge and acquiescence of his wife."
The scandal overshadowed the final years of the reign of Juan Carlos, who guided Spain from dictatorship to democracy after the death in 1975 of General Francisco Franco but tearfully abdicated in favour of his son on June 18.
Cristina has been sidelined from royal activities since the scandal broke.
She was notably absent from ceremonies marking her brother Felipe's ascension to the throne on June 19.
Since Felipe became king, neither Cristina nor her elder sister Elena, 50, form part of the official Royal Family. Under Spanish law, the representatives of the crown comprise only the king, his wife, his immediate forebears, his descendants and the crown prince.
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