"These measures are to guarantee that not one euro will go toward financing illegal acts", Spain's Budget Minister Cristobal Montoro said following the weekly cabinet meeting.
This new system will allow the Spanish state to "replace the region for the majority of essential spending", he added.
Catalan leader Carles Puigdemont told broadcaster TV3 on Thursday the national government in Madrid has created a "climate of hostility and paranoia" around the planned ballot.
The announcement comes in response to a letter by Catalan Vice President Oriol Junqueras, informing the Madrid government that Catalonia would no longer be sending weekly expense reports to Madrid as the October 1 referendum nears.
"British companies are wary of any political instability..."
Montoro said he would appear before parliament next week to give the full details of the measures which would also include a demand by Madrid that the central government oversees all short-term debt operations by the regional government.
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But the overture was roundly rebuffed by the spokesman for the Spanish government, Íñigo Méndez de Vigo, who said Madrid had not received the letter and only learned about it through the press.
"We have reached this moment stronger than what many had thought and wanted, as we are proving by responding firmly to each threat", he said.
But a big question mark remains over Barcelona, Catalonia's biggest city run by Mayor Ada Colau, a left-wing former activist.
Police have been directed to arrest the mayors should they fail to answer the summons, according to the official letter sent to local authorities.
Catalan leaders remain defiant however, pledging to continue with their plans to hold the referendum. A political dialogue, from legitimacy that each one represents, to make possible what democracy is never a problem, nor still less a crime: "listen to voice of citizens".
"We have always said that we would respect the rulings of the Spanish Constitutional Court and the Spanish parliament, said Juncker: "If there were to be a yes vote for Catalan independence we would respect that choice". The government warned the region would lose access to some public funds if it was found to be using state money to organize the vote. The Spanish king Felipe VI said on Wednesday (13 September) that the Constitution would prevail in case of any breach, and that the rights of all Spaniards would be preserved.
The signatories also accused the Spanish administration, lead by Mr Rajoy of having gone "on the offensive with unprecedented repression".