MADRID - Spain may be forced to hold a third round of elections, acting Prime Minister Mariano Rajoy warned Tuesday after his Socialist rival refused to back his efforts to form a government.

Spain has been without a fully functioning government for more than seven months following two inconclusive polls, leaving it in political limbo in a sensitive economic and political period.

But even as parties reiterate the crucial need for a stable government after repeat elections in June, none appear ready as yet to overcome their differences and seal a coalition deal - including Socialist party chief Pedro Sanchez. "If Mr Sanchez continues to say no, we will go to repeat elections," Rajoy, whose conservative Popular Party (PP) came first in June polls and who has therefore been tasked by the king to form a coalition or minority government, told reporters. "A country that holds three elections in a year - or one in which its political leaders are incapable of agreeing - will not see its reputation improve," he said, adding it would be an "absurdity."

Spain is currently ruled by a caretaker conservative government with limited room for manoeuvre just as it needs to take urgent steps to reduce its deficit, establish a budget for the coming year and address a growing separatist movement in the Catalonia region.

The country's political paralysis started after elections on December 20 failed to give any party an absolute parliamentary majority, as upstart groupings Ciudadanos and Podemos shook up Spain's long-established two-party system.

Fed up with years of crisis-sparked austerity and repeated corruption scandals, millions of Spaniards tasked the two upstarts to revitalise the country.

But efforts to forge a coalition were unsuccessful as rival parties were unable to overcome their differences, prompting repeat elections in June with a similar result.

Rajoy's PP, in power since 2011, won the June 26 vote but fell short of an absolute majority, winning 137 seats out of 350.

He has since been tasked by the king to form a coalition or minority government, which he will have to push through a parliamentary vote of confidence.

In order to do so, Rajoy will need an absolute majority in the vote. If he fails, a second vote will be held in which he would only need a simple majority.

But Sanchez - whose Socialist party came second in June elections and whose 85 seats would give any Rajoy-led government proposal a significant boost in a parliamentary vote - refuses to back him.

"We are not going to back something we want to change... the left will not back the right," Sanchez told reporters after meeting the acting prime minister.

However he appeared to leave the door open for the possibility that the Socialists would abstain in a vote of confidence, saying that the party's leadership committee would have the ultimate say in whether the grouping changes its posture or not.

Several high-ranking members of the Socialist party, including former prime minister Felipe Gonzalez, have pushed for an abstention to let a minority government led by Rajoy through, and thus end the political paralysis.

And a high-ranking Socialist party source, who refuses to be named, has said an abstention in the second parliamentary vote is the most likely scenario.

Rajoy is also due to meet Albert Rivera, the chief of centre-right upstart Ciudadanos, on Wednesday as his search for support continues.

Rivera has said his party would be willing to abstain in the vote of confidence, but with just 32 seats, that would not be enough to push Rajoy's government proposal through.