Photographs of Monday's event at the glamorous Casino de Madrid, which showed many guests without masks, quickly went viral and sparked outrage among Spaniards who felt they were being held to a double standard.
Among the attendees were four cabinet ministers, opposition leader Pablo Casado and several of his deputies, as well as a cluster of corporate leaders.
Speaking in parliament, Health Minister Salvador Illa said the event complied with all restrictions and that he only stayed to present an award to the armed forces.
"After giving the prize, maybe you don't know it, but I left. I didn't stay for dinner,» he said.
He acknowledged his attendance had set a bad example.
"Even those events that meet all requirements are best avoided," he said. "The best way to social distance is by not going and we should all follow this path because citizens are right (to be annoyed)."
Many Spaniards are frustrated with their government's efforts to control the pandemic, which has killed more than 35,000 people and infected over a million, making Spain one of the worst hotspots in Europe.
On Sunday, Prime Minister Pedro Sanchez declared a nationwide state of emergency that he hopes to extend for six months, along with night-time curfews. Private social gatherings are limited to six people but larger public events are allowed under certain limits, including on how many people can attend.
Online news website El Espanol, which organised the event, said it was both safe and legal, as the attendance of 80 people was equivalent to 33% of the venue's capacity.
But Gabriel Rufian, spokesman for left-wing Catalan separatist ERC and Ivan Espinosa de los Monteros, spokesman for the far-right Vox party, were among those who chastised fellow parliamentarians for attending the event.
"They party with you until late at night while regular Spaniards are being locked down and threatened with all kind of punishment," Espinosa de los Monteros told parliament.
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The Minister for Health should ideally be sacked and fined heavily. What's the point of being a Public Servant if you can't follow your own rules?
leaves one to assume they dont wear masks or follow curfew because they know something they aren't telling the rest of us.