The Spanish government has stripped Catalonia`s most senior police officials of their powers, hours after direct rule was imposed on the region.
This is the first specific measure taken since the Catalan parliament voted to declare independence.
PM Mariano Rajoy has also announced the dissolution of the regional parliament and the removal of the Catalan leader, and called snap local elections.
Demonstrations for and against independence went on into the night.
More are expected on Saturday, with a rally "for the unity of Spain and the constitution" to be held in Madrid.
The crisis began when Catalan leaders held an independence referendum, defying a ruling by the Constitutional Court which had declared it illegal.
The Catalan government said that of the 43% of potential voters who took part, 90% were in favour of independence. Others boycotted the vote after the court ruling.
What are the latest developments?
On Friday afternoon, the Catalan regional parliament voted to declare independence from Spain.
Soon after, the Spanish Senate granted Mr Rajoy`s government the power to impose direct rule on Catalonia.
The statement from Interior Minister Juan Ignacio Zoido (in Spanish) followed hours later, announcing the "cessation" of Josep Lluís Trapero Álvarez as chief of Catalonia`s autonomous Mossos police force.
Mr Trapero was already under investigation for sedition, accused of failing to help Spain`s Guardia Civil police tackle thousands of pro-independence protesters in Barcelona during the run-up to the referendum.
Separately, Spain`s Efe news agency reported that Pere Soler i Campins, the Mossos director general had also been dismissed by Madrid.
Mr Rajoy said Mr Puigdemont and his cabinet would be sacked, the parliament dissolved and elections called.
"[Mr Puigdemont] had the opportunity to return to legality and to call elections," he said.
"It is what the majority of the Catalonian people asked for - but he didn`t want to do it. So the government of Spain is taking the necessary measures to return to legality."
Regional elections are scheduled for 21 December.
Mr Puigdemont urged supporters to "maintain the momentum" in a peaceful manner. Spanish prosecutors say they will file charges of "rebellion" against him next week.
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.
Rajoy`s dangerous move
By Sarah Rainsford, BBC News, Madrid
Spain`s prime minister may have hoped warning Catalonia against declaring independence would be enough. Now he has to follow through on his pledge to impose direct rule, knowing this is highly risky.
Mariano Rajoy argues that Catalan separatists left him no choice. He had to act, to return the region to "legality", as Madrid puts it. But actually doing that will be complex and highly fraught.
It`s why Mr Rajoy called for calm in Spain, after the Catalan vote for independence. He is acting with broad, cross-party support though, and public backing.
Here in Madrid many people have begun flying the Spanish national flag from their windows and balconies, to show their support for keeping the country united.
There is some sympathy for the Catalan cause, mostly because of the police crackdown during the referendum. But far louder are calls to prosecute those pushing for independence. It`s a move which many Spaniards, like their government, are convinced was illegal.
What`s the reaction been?
Thousands celebrated the declaration of independence on the streets of Barcelona, Catalonia`s regional capital.
The same crowds that cheered each Yes vote from Catalan MPs reportedly booed Mr Rajoy as he made his announcement.
There were pro-unity demonstrations too, with protesters in Barcelona waving Spanish flags and denouncing Catalan independence. A large pro-unity rally is expected in Madrid on Saturday.
In other reaction:
How did we get here?
After the 1 October referendum, Mr Puigdemont signed a declaration of independence but delayed implementation to allow talks with the Spanish government.
He ignored warnings by the Madrid government to cancel the move, prompting Mr Rajoy to first announce his plans to remove Catalan leaders and impose direct rule.
Catalonia is one of Spain`s richest, most distinctive regions, with a high degree of autonomy.
Many Catalans feel they pay more to Madrid than they get back, and there are historical grievances, too, in particular Catalonia`s treatment under the dictatorship of General Franco. But Catalans have been divided on the question of independence.
Dramelin
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