Under the controversial deal, which was reached on Wednesday night after weeks of tense discussions, the government will grant pardons to Catalan separatists who were charged with sedition and terrorism offences for their roles in an unsanctioned independence referendum in 2017 and subsequent protests.
The situation triggered the most severe constitutional crisis Spain has faced since the return of democracy after the end of the Franco dictatorship in the 1970s.
In exchange for the amnesty, the Catalan parties will back Spain's prime minister Pedro Sanchez's bid to govern for another four-year term and give the PSOE the required votes for a slim majority in parliament.
The former Catalonia president and leader of the hardline Junts per Catalunya (Together for Catalonia) party, Carles Puigdemont, who has lived in self-imposed exile since he and hundreds of others were charged for leading the push for independence, had refused to back Sanchez without the amnesty.
Junts had also rejected a proposal in January which the party felt did not provide enough guarantees that the separatists would not be prosecuted.
The amnesty deal covers "all persons linked to the independence process" and is "fully in accordance with the Constitution, European law and jurisprudence and the best European and international standards," the parties said in a joint statement.
PSOE secretary of organisation, Santos Cerdan, hailed the amnesty law as the start of "a new chapter" that will draw a line under the "worst crisis our democracy has faced".
"Reconciliation and generosity to continue building, together, a better country", Cerdan wrote on X.
Sanchez had also long insisted that granting pardons to the separatists was the only way to move the country forward.
The agreement between the PSOE and Junts and the left-wing ERC (Republican Left of Catalonia) has angered many right-wing and conservative groups in Spain, who accuse Sanchez and the PSOE of cynically clinging to power.
The leader of the conservative opposition People's Party (PP), Alberto Nunez Feijoo, slammed the deal as a "scandal" on Thursday.
In a speech to the European PP (EPP) in Bucharest, he accused the Sanchez government of allowing "very serious crimes" to go unpunished.
Feijoo added that a "growing majority" of Spaniards are looking to his party and to European Union institutions to "stop these absurdities", in reference to the amnesty law and a separate alleged corruption scandal and investigation over the purchase of face masks during the COVID pandemic implicating senior PSOE ministers.
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