Spain's Prime Minister Mariano Rajoy agreed Tuesday to extend a monthly payment for the poorest jobseekers, just 24 hours before it was due to expire.
Rajoy told reporters the government would on August 24 approve the renewal of the 400-euro ($493) monthly allowance in order to protect poor families suffering in Spain's recession.
The long-term unemployment benefit was introduced by the former Socialist government for people who have exhausted all the regular allowances linked to their previous salary.
It was due to expire on August 15, and speculation had been mounting that the government would let it lapse, to slash the public deficit and rebuild its battered credibility on the financial markets.
One in four workers is unemployed in Spain and there are 1.7 million families with all eligible members out of work, according to the national statistics office.
"The government is taking complex and difficult decisions, decisions which not many people like," Rajoy said, adding that the government was trying to aid "those people who are in a very difficult situation".
"Therefore we are going to renew it," he said of the allowance, speaking to reporters after meeting with King Juan Carlos at the Marivent royal residence on the island of Majorca.
"We are going to try to make it function better than it has since it has existed, because the aim was to get all these people into work and that has not really happened," Rajoy said.
Pressure had risen in recent days for Rajoy's conservative Popular Party government to renew the allowance, which has been repeatedly extended for extra six-month periods since its creation in February 2011.
Socialist Party opposition leader Alfredo Perez Rubalcaba had warned Monday he would launch a massive popular petition calling for the benefit to be extended.
But the government is also under pressure from European authorities to cut Spain's public deficit from 8.9 percent of gross domestic product recorded in 2011 to 6.3 percent this year.
Among tens of billions of euros' worth of crisis measures announced by Rajoy last month were new pay cuts and restrictions on certain other benefits for those in the first few months of unemployment.
Those measures included lowering the unemployment benefit after six months of payments to 50 percent of a worker's former salary instead of the previous level of 60 percent.
The unemployment rate rose in the second quarter to 24.63 percent of the workforce and to a huge 53 percent among the young, despite the start of the tourist season, according to official data.
The economy is reeling in the aftermath of a decade-long real estate boom that crashed with the debt crisis in 2008, bringing the Spanish financial sector to its knees.