Thousands of people have marched in the Spanish capital denouncing the government and calling for an end to harsh austerity measures that have deepened poverty among the worst-off.

Gathering under the banner of "Dignity" in Madrid on Saturday, protesters decried government financial cuts, housing rights policies, and high unemployment rates.

Carrying banners reading "Food, jobs and a roof with dignity. Working for a general strike", the protesters packed much of the city's Colon Square and Paseo de Recoletos boulevard.

Dolores Cerezo, who had arrived from southern Sevilla, said the government had cut back "savagely" on public services such as education and the national health service.

Spain is emerging from a seven-year economic slump as one of the eurozone's fastest growing countries, but the exit from recession has yet to ease the hardship for thousands of households, in a country where nearly one in four of the workforce is out of a job.

Prime Minister Mariano Rajoy announced new social welfare support last month and touted his government's economic record in a bid to woo back crisis-worn voters, who are increasingly turning to upstart parties as elections loom.

Rajoy, whose centre-right People's Party (PP) is expected to use economic recovery as its trump card in a general election to be held by year-end, raised the government's economic growth forecast for 2015 to 2.4 percent, from two percent.

He also announced several welfare measures, including support for single parents, in a parliamentary address peppered with indirect swipes at insurgent parties such as anti-establishment Podemos (We Can), which is gaining in the polls.

Podemos, launched a year ago, threatens to unseat the Socialists as the country's number two party and has topped some polls as a possible victor in the election.