The Prime Minister's cabinet approved the pardons, which Sanchez said aim to foster reconciliation between Catalonia and the rest of Spain.
"It's best for Catalonia and for Spain and it's in accord with the Spanish Constitution," Sanchez said in a nationally-televised statement. "The government will work for understanding and not for confrontation."
Opinion polls show about half of Catalonia's population wants independence but also show that about 60% of Spaniards oppose freeing the nine leaders, Reuters reported on Monday.
The nine leaders include Oriol Junqueras, a former vice-president of Catalonia, the wealthy, restive northeastern region whose capital is Barcelona, and where many have long clamored for independence from Spain.
The nine were arrested in the autumn of 2017, shortly after the Catalan parliament unilaterally declared the region's independence. The move prompted Spain's then-conservative government to use extraordinary powers to take temporary control of the region, ousting its government. Police and protesters repeatedly clashed in the streets.
The constitution does not allow any of Spain's 17 regions to unilaterally break away. The nine were convicted and sentenced in 2019 to prison terms of 9 to 13 years for their roles in the failed uprising.
The pardons do not apply to Catalonia's former president, Carles Puigdemont, who fled to Belgium in 2017, along with some top aides, after Madrid took control of the region. They still face arrest if they return to Spain.
Sanchez said the pardons are "conditional" on the nine not committing "serious crimes" for a certain period on time.
Sanchez, who heads Spain's Socialist government, has recently said publicly that the pardons were coming soon, in order to pursue a negotiated solution between Spain and Catalonia.
"We can't start from scratch," Sanchez told an audience at Barcelona's opera house on Monday. "But we can start anew."
The opposition conservatives blasted the pardons, saying they weaken Spain. They vowed to fight them, after attracting tens of thousands to an anti-pardon protest in Madrid earlier this month.
Catalan separatist parties again won the majority of seats in the regional parliament in elections last February. The current Catalan president, Pere Aragones, is from the pro-independence Republican Left party, which has provided crucial support for Sanchez's government in Spain's parliament in Madrid.
The furor over the pardons affected even Antonio Garamendi, president of Spain's influential business-owners association, CEOE, who told Spanish state television last week that if the pardons could help "normalize things, then welcome to them." He later backtracked, saying his comments were taken out of context.