Speaking at today’s meeting of the European Council, Mr Rajoy highlighted the need to maintain relations between the UK and Brussels after Brexit.
Hailing the achievements of both Brexit negotiating teams in concluding stage one of talks, he said Spain would need an agreement with the UK during any transitional deal, to maintain “fantastic relations” between the two countries.
Mr Rajoy said: “Any future agreement between the UK and the EU needs an agreement between Spain and the United Kingdom. That must be applied during the transitional period.
“We want the best relations with the UK. Britons in Spain will be respected, as well as Spaniards living in the UK.
“We want the UK to keep investing in Spain. We want to keep our fantastic relations with the UK.”
He added: “The UK is leaving the EU, but not Europe. The UK is an indispensable partner to us.”
The Spanish leader also congratulated Michel Barnier and Theresa May for progress on Brexit so far.
He said: “We appreciate the efforts made by both Brexit negotiating teams.
“We trust Michel Barnier and the constructive spirit of the British government.
“We welcome this first agreement, but we know that the road to come is more complicated.
“The objective is to give certainty and security to citizens and economic agents.”
He added that due to the complicated nature of the negotiations, he expected the transitional agreement could last much longer than Mrs May’s stated two-year period.
Mr Rajoy said: “There is no deadline for the transitional period. It is not closed. We talk of two years, but it is not closed.”
It comes after the EU27 agreed today “sufficient progress” has been made over divorce details for the Brexit deal to move forward.
However Eurocrat-in-chief Jean-Claude Juncker said “real negotiations” on the second phase of the UK’s divorce talks would not start until spring.
But the President of the European Commission said: “I think that the real negotiations on the second phase will start in March next year.”
He added: “I cannot say when these negotiations will be concluded.”
And in an apparent dig at the Prime Minister’s rush to conclude phase one of the negotiations last week, he said he hoped to avoid another 11th-hour deal.
Mr Juncker said: “I don’t hope that I will have to have as an early morning meeting with the British Prime Minister than the one I had last week.”
Additional reporting by Maria Ortega