The decree prohibits all exports to Israel of defence material and dual-use products or technologies, and the import of such equipment to Spain, Economy Minister Carlos Cuerpo said at a news conference.
It also blocks requests for the transit of aircraft fuel with potential military applications and bans imports of products originating from Israeli settlements in occupied Palestinian territories, including their advertising, Cuerpo said.
"This decree is a big step forward and is pioneering at the international level when it comes to a total arms embargo on Israel," Cuerpo told a news conference after the cabinet approved the measure.
The government says the decree "consolidates in law" a ban on military equipment sales or purchases with Israel that it had applied since the start of the Israeli offensive in Gaza.
The decree will come into force immediately, but it must still be approved at a later date by parliament, where Sanchez's left-wing government lacks a majority and has struggled to pass legislation.
Sanchez announced the arms embargo this month as part of a package of nine measures aimed at stopping what he called "the genocide in Gaza".
He has been one of the most vocal critics in Europe of the offensive in Gaza, launched in response to the October 7, 2023 attacks by Hamas.
"I do believe that we are witnessing one of the darkest and most terrible events of the 21st century unfold right before our eyes," he said Monday at an event at Columbia University in New York, as the UN General Assembly kicked off.
"And simply, the international community cannot remain silent and paralysed," he said.
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