Facing urgent pressure to fix Spain's economy, with five million people unemployed and warnings of a fresh recession looming, Rajoy, 56, has vowed to create jobs, clean up banks and reassure investors over the country's finances.
For Spaniards, this means above all a deepening of spending cuts that have already brought thousands onto the streets in protest.
Rajoy's warnings of austerity did not stop his Popular Party winning the November 20 general elections and seizing control of the 350-seat Congress, which on Tuesday voted by a majority of 187 to install him as prime minister.
The speaker of the house, Jesus Posada, declared Rajoy the winner after members of parliament stood up one by one to declare their votes, with 149 voting against him and 14 abstaining.
Rajoy hugged and kissed fellow party members and shook hands with other deputies.
"I know that things are going to be difficult, but I am keen, I have hope and determination to take Spain forward," Rajoy told reporters as he left the parliament.
He said he would announce his government after he is sworn in by King Juan Carlos on Wednesday. Government ministers will formally take office on Thursday and will hold a first cabinet meeting the next day.
In a speech to parliament on Monday, he gave the first details of his plans to cut the deficit and reassure the markets on which Spain borrows money to finance its debt.
He vowed to slash the public deficit by 16.5 billion euros ($A21.78 billion) through public spending cuts, with only pensions escaping the knife.
"A government cannot do absolutely everything," Rajoy said Tuesday after the parliamentary vote.
"A government is there to create conditions for people to be more free, so that people can work and generate well-being, wealth and jobs."
Deficit targets imposed by the outgoing Socialist government have already prompted cuts in healthcare and education services in some regions, sparking street protests by teachers, doctors and others.
Rajoy had vowed to stick to Spain's targets to cut the deficit to 4.4 per cent of gross domestic product in 2012 and 3.0 per cent of GDP, the EU limit, in 2013.
He acknowledged on Monday that the country may miss its deficit target of 6.0 per cent of GDP this year and warned that if the figure reaches 7.0 per cent, the government will have to make 10 billion euros more in cuts.
"The more people help and join in this project for national recovery - for we are going through a serious crisis - the better for the interests of all Spaniards," he said on Tuesday.
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