The prime minister said the unprecedented imposition of direct rule on Catalonia was essential to "recover normality" in the region.
He is also firing Catalan leader Carles Puigdemont and his cabinet.
Comment: Article 155 does not explicitly allow for the Madrid government to take control of an autonomous region and rule it directly, but instead it specifies that 'the [Madrid] government can take the necessary steps to oblige the autonomous region to comply with orders from the government'. By dissolving the Catalan government and, effectively, ruling directly until new elections in December, the Madrid government is breaking its own laws.
What kind of elections does Madrid think it can organize in December whereby there will be a majority of anti-independence members of the Catalan parliament, unlike the current parliament configuration? Are mass arrests of pro-independence MPs in Cataluña coming? Will pro-independence parties be banned? How else can Madrid prevent the MPs it has just 'fired' from running again for election?
Earlier, the Catalan parliament unilaterally voted to declare independence.
Mr Rajoy made the announcement following a frantic day of developments in the row over Catalan independence.
The Spanish Senate granted Mr Rajoy's government the constitutional power to suspend Catalan autonomy, and after a cabinet meeting Mr Rajoy spelled out what that would entail.
Promising "free, clean and legal" elections, he called the situation "sad", saying: "We never wanted to come to this."
The elections are scheduled for 21 December. Mr Rajoy also announced the sacking of the Catalan police chief.
After the Catalan parliament voted to declare independence, thousands took to the streets to celebrate.
Separatists say the move means they no longer fall under Spanish jurisdiction.
But the Spanish Constitutional Court is likely to declare it illegal, while the EU, the US, the UK, Germany and France all expressed support for Spanish unity.
Comment: Spain is also seeking rebellion charges against the Catalan leaders responsible for the independence vote, which could be brought as early as Monday.
Thousands of demonstrators gathered outside the Catalan parliament. When independence from Spain was announced, the crowd went wild with excitement.