The roughly 300 members of the party's federal committee -- its de-facto parliament -- have been summoned to the Socialist headquarters in Madrid for a showdown between allies of Sanchez and opponents who want him out.
The outcome could see the party lift its veto on a new government led by acting conservative Prime Minister Mariano Rajoy, a move that would be key in unblocking Spain's nine-month political paralysis.
Since December 2015, the country has been without a fully-functioning executive as rivals fail to agree on a government following two elections in which none of the main parties won an absolute majority.
"Tomorrow's federal committee meeting faces a decisive debate," Sanchez told reporters yesterday evening, his face sombre as he made his first public appearance since senior party members tried to oust him on Wednesday.
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The Socialist Party (PSOE) has for months been wracked by internal dissent, with Sanchez's opponents unhappy with his leadership during Spain's protracted political stalemate and with the grouping's dismal results at both general elections and weekend regional polls.
His detractors want the PSOE to use the 85 parliamentary seats it won in June polls to help unblock the national deadlock and allow a right wing government led by Rajoy through by abstaining in a vote of confidence, rather than voting against as it did earlier this month.
The PSOE's place is "in the opposition," said Socialist lawmaker Eduardo Madina who opposes Sanchez.
But Sanchez is resolutely against letting Rajoy rule for another term, pointing to repeated corruption scandals hitting the PP and inequalities sparked by years of crisis-triggered austerity.
This fundamental divergence in views is what will be at stake in today's meeting.