"There was an error in a reference which will be corrected in a new edition," Sanchez told reporters in Salzburg in Austria, where EU leaders were gathered.
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The news comes as a Madrid university is embroiled in a "Mastergate" scandal that has seen several high-profile politicians, including the head of the opposition Popular Party, accused of being gifted degrees without attending lecturers.
Spanish daily El Pais reported that the book written by Sanchez and another economist in 2013 reproduced, without quotation marks or any reference, entire pages of a speech made by a Spanish diplomat even including a mistake in the original text.
The Spanish government told the newspaper it was an "involuntary mistake" and that the authors would correct it.
The book -- "The Spanish economy's new diplomacy" -- includes Sanchez's 2012 doctoral thesis as well as additions which include the diplomat's speech.
Last week Sanchez, Pedro Sanchez, a former economics professor, was forced to fight back against allegations he plagiarised the thesis with paragraphs from an article by fellow economists and from a government presentation.
He threatened to take legal action against media that published the claims and made his thesis public online.
In Salzburg, Sanchez said he was willing to go to the Senate to give explanations but warned that "being in the opposition isn't about making noise".
Pablo Iglesias, leader of far-left party Podemos and an ally of Sanchez, said the prime minister should explain himself.
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