In a speech to regional lawmakers in Barcelona, Puigdemont stopped short of declaring an outright split but left the door to secession open, leaving some political rivals scratching their heads.
"I assume the mandate of the people for Catalonia to become an independent republic," he said.
But the 54-year-old asked the Catalan parliament to "suspend the effects of the independence declaration to initiate dialogue in the coming weeks."
The central government fired back, with a spokesman rejecting what Madrid termed Catalonia's "tacit" independence declaration.
Political leaders in Catalonia, Spain and Europe have come out against an independence declaration, concerned over the country's biggest upheaval since its transition to democracy in the 1970s.
EU nations are watching developments closely amid concern that Catalan independence could put further pressure on the bloc still dealing with the fallout from Britain's shock decision to leave.
Police deployed en masse around the regional parliament, blocking public access to a park that houses the building as crowds watched the session on giant screens, waving Catalan flags and some brandishing signs reading "democracy."
Reaction among those who had hoped to witness a historic moment for a region deeply-divided over independence was mixed.
"In essence we're happy but I was expecting more," said 66-year-old Pere Valldeneu.
Merce Hernandez, a 35-year-old architect, said: "I am very emotional, this is a historic day. I'm satisfied."
"We call on Puigdemont not to do anything irreversible, not to pursue a path of no return and not to make any unilateral independence declaration," government spokesman Inigo Mendez de Vigo told reporters earlier Thursday.
A source from the central government's representative office in Catalonia said security had been tightened at Catalan airports and railway stations in anticipation of possible protests at Puigdemont's possible independence announcement.
At stake is the future of a region of 7.5 million people deeply divided over independence, one of Spain's economic powerhouses whose drive to break away has raised concern for stability in the European Union.
Prime Minister Mariano Rajoy has vowed to use everything in his power to prevent independence and has even refused to rule out imposing direct rule over the semi-autonomous region -- an unprecedented move many fear could lead to unrest.
EU President Donald Tusk also urged Puigdemont against making a decision that would make "dialogue impossible".
But the Catalan president says the independence referendum that took place on October 1 despite a court ban justifies splitting from Madrid.
Around 90 percent of those who cast ballots voted for independence but the poll was poorly monitored and many Catalans opposed to secession boycotted an illegal plebiscite that was witnessed a violent police crackdown.
Anger on both sides
On Monday, Ada Colau, the popular mayor of Barcelona, warned that a unilateral declaration of independence would put "social cohesion" at risk.
Pro-unity and pro-independence supporters have staged mass rallies in Barcelona over the past week, highlighting divisions in Catalonia.
Anger over the police violence during the referendum swung some Catalans over to the independence camp.
But both Madrid and the Catalan executive have come under fire for their dogged response to the crisis and a lack of dialogue.
Carolina Palles, a 53-year-old flower vendor in Barcelona's popular La Ramblas boulevard, said it was "a sad day", almost two months after the seaside city was hit by a deadly terror attack.
Against independence, she was angry at both camps.
"Rajoy's government handled things very badly," she said, accusing the separatists "of persisting until the very end, like martyrs".
The crisis has also caused deep uncertainty for businesses in one of the wealthiest regions in the eurozone's fourth largest economy.
Spain's stock market shed nearly 1.0 percent ahead of Tuesday's session and a string of companies have already moved their legal headquarters -- but not their employees -- from Catalonia to other parts of the country.
Demands for independence in Catalonia, which has its own language and cultural traditions, date back centuries.
But a 2010 move by Spain's Constitutional Court to water down a statute that gave Catalonia additional powers, combined with a deep economic meltdown in Spain, sparked a surge in support for independence.
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