Spanish politicians have approved a decree by the Socialist government authorising the exhumation of late dictator Francisco Franco.

The sensitive decision to move Franco's remains from his vast mausoleum near Madrid was approved by a vote of 172 in favour, two against and 164 abstentions.

Socialist Prime Minister Pedro Sanchez, who came to power in June, has made removing Franco's remains from the monument in the Valle de los Caidos (Valley of the Fallen) near Madrid one of his priorities.

"Justice. Memory. Dignity. Today Spain takes a historic step... today our democracy has become better," Mr Sanchez wrote on Twitter.

Franco, who ruled Spain with an iron fist from the end of the 1936-39 civil war until his death in 1975, is buried in an imposing basilica carved into a mountain-face just 50km outside of Madrid.

Built by Franco's regime between 1940 and 1959 - in part by the forced labour of political prisoners - the monument holds the remains of around 37,000 dead from both sides of the civil war, which was triggered by Franco's rebellion against an elected Republican government.

In parliament, Deputy Prime Minister Carmen Calvo called for the end of the "extraordinary anomaly" of having a former dictator "exalted" in a state mausoleum.

"There will be no respect, no honour, no harmony as long as Franco's remains are in the same place as his victims," Ms Calvo said.

The Socialist government has indicated the body would be exhumed by the end of the year.

Franco's family has fiercely opposed the decision, which has divided Spain and opened old wounds.