The Spanish parliament has overwhelmingly rejected a plan put forward by the Basque regional government for greater autonomy.
Mr Ibarretxe plans to hold a referendum on the issue
Prime Minister Jose Luis Rodriguez Zapatero accused the Basque leader of promoting a vision of the Basque country that did not exist.
The Basque leader, Juan Jose Ibarretxe, still plans to hold a referendum in his region on the autonomy proposal.
Polls show that around 39% of Basques accept the proposal completely.
The proposal was unexpectedly adopted by the Basque parliament in December.
The armed Basque separatist group, Eta, has waged a violent independence campaign for more than three decades.
Mr Ibarretxe earlier addressed the Spanish parliament in Madrid, speaking first in the Basque language before continuing in Spanish.
"I have come to the Spanish parliament to defend the right of the Basque people to decide their future," he said.
"I sincerely believe there exists a solution... common ground," he said of the dispute that has led to a violent separatist campaign by Eta, in which more than 800 people have died since the late 1960s.
But his proposals for a separate judiciary, financial system and citizenship were rejected in vote by 313 to 29. Mr Ibarretxe wants a new relationship with Spain, in which a Basque "free state" is largely independent.
He is the first leader of one of Spain's 17 semi-autonomous regions to address parliament.
The ruling Socialists and the main opposition, the conservative Popular Party, say his proposals will only cause divisions in the Basque region.
Mr Zapatero said the plan ignored mainstream sentiment in the Basque country supporting the status quo.
"The Basque country's relationship with the rest of Spain will be decided by all Basques, not just half," he said.
Opposition leader Mariano Rajoy said Mr Ibarretxe was eyeing independence, not just more autonomy.
"We're going to uphold our duty by rejecting [the proposal]," he said.