The invasion of the Filipinos by Spain did not begin in earnest until 1564, when another expedition from New Spain, commanded by Miguel López de Legaspi, arrived. Permanent Spanish settlement was not established until 1565 when an expedition led by Miguel López de Legazpi, the first Governor-General of the Philippines, arrived in Cebu from New Spain. Spanish leadership was soon established over many small independent communities that previously had known no central rule. Six years later, following the defeat of the local Muslim ruler, Legazpi established a capital at Manila, a location that offered the outstanding harbor of Manila Bay, a large population, and closeness to the sufficient food supplies of the central Luzon rice lands. Manila became the center of Spanish civil, military, religious, and commercial activity in the islands. By 1571, when López de Legaspi established the Spanish city of Manila on the site of a Moro town he had conquered the year before, the Spanish grip in the Philippines was secure which became their outpost in the East Indies, in spite of the opposition of the Portuguese, who desired to maintain their monopoly on East Asian trade. The Philippines was administered as a province of New Spain (Mexico) until Mexican independence (1821).
Manila revolted the attack of the Chinese pirate Limahong in 1574. For centuries before the Spanish arrived the Chinese had traded with the Filipinos, but evidently none had settled permanently in the islands until after the conquest. Chinese trade and labor were of great importance in the early development of the Spanish colony, but the Chinese came to be feared and hated because of their increasing numbers, and in 1603 the Spanish murdered thousands of them (later, there were lesser massacres of the Chinese).
The Spanish governor, made a viceroy in 1589, ruled with the counsel of the powerful royal audiencia. There were frequent uprisings by the Filipinos, who disliked the encomienda system. By the end of the 16th cent. Manila had become a leading commercial center of East Asia, carrying on a prosperous trade with China, India, and the East Indies. The Philippines supplied some wealth (including gold) to Spain, and the richly loaded galleons plying between the islands and New Spain were often attacked by English freebooters. There was also trouble from other quarters, and the period from 1600 to 1663 was marked by continual wars with the Dutch, who were laying the foundations of their rich empire in the East Indies, and with Moro pirates. One of the most difficult problems the Spanish faced was the defeat of the Moros. Irregular campaigns were conducted against them but without conclusive results until the middle of the 19th century. As the power of the Spanish Empire diminished, the Jesuit orders became more influential in the Philippines and obtained great amounts of property.
Occupation of the islands was accomplished with relatively little bloodshed, partly because most of the population (except the Muslims) offered little armed battle initially. A significant problem the Spanish faced was the invasion of the Muslims of Mindanao and the Sulu Archipelago. The Muslims, in response to attacks on them from the Spanish and their native allies, raided areas of Luzon and the Visayas that were under Spanish colonial control. The Spanish conducted intermittent military campaigns against the Muslims, but without conclusive results until the middle of the 19th century.
Church and state were inseparably linked in Spanish policy, with the state assuming responsibility for religious establishments. One of Spain's objectives in colonizing the Philippines was the conversion of Filipinos to Catholicism. The work of conversion was facilitated by the absence of other organized religions, except for Islam, which predominated in the south. The pageantry of the church had a wide plea, reinforced by the incorporation of Filipino social customs into religious observances. The eventual outcome was a new Christian majority of the main Malay lowland population, from which the Muslims of Mindanao and the upland tribal peoples of Luzon remained detached and separated.
At the lower levels of administration, the Spanish built on traditional village organization by co-opting local leaders. This system of indirect rule helped create in a Filipino upper class, called the principalía, who had local wealth, high status, and other privileges. This achieved an oligarchic system of local control. Among the most significant changes under Spanish rule was that the Filipino idea of public use and ownership of land was replaced with the concept of private ownership and the granting of titles on members of the principalía.
The Philippines was not profitable as a colony, and a long war with the Dutch in the 17th century and intermittent conflict with the Muslims nearly bankrupted the colonial treasury. Colonial income derived mainly from entrepôt trade: The Manila Galleons sailing from Acapulco on the west coast of Mexico brought shipments of silver bullion and minted coin that were exchanged for return cargoes of Chinese goods. There was no direct trade with Spain.
Decline of Spanish rule
Spanish rule on the Philippines was briefly interrupted in 1762, when British troops invaded and occupied the islands as a result of Spain's entry into the Seven Years' War. The Treaty of Paris in 1763 brought back Spanish rule and the British left in 1764. The brief British occupation weakened Spain's grip on power and sparked rebellions and demands for independence.
In 1781, Governor-General José Basco y Vargas founded the Economic Society of Friends of the Country. The Philippines by this time was administered directly from Spain. Developments in and out of the country helped to bring new ideas to the Philippines. The opening of the Suez Canal in 1869 cut travel time to Spain. This prompted the rise of the ilustrados, an enlightened Filipino upper class, since many young Filipinos were able to study in Europe.
Enlightened by the Propaganda Movement to the injustices of the Spanish colonial government and the "frailocracy", the ilustrados originally clamored for adequate representation to the Spanish Cortes and later for independence. José Rizal, the most celebrated intellectual and essential illustrado of the era, wrote the novels Noli Me Tangere and El Filibusterismo, which greatly inspired the movement for independence. The Katipunan, a secret society whose primary principle was that of overthrowing Spanish rule in the Philippines, was founded by Andrés Bonifacio who became its Supremo (leader).
The Philippine Revolution began in 1896. Rizal was concerned in the outbreak of the revolution and executed for treason in 1896. The Katipunan split into two groups, Magdiwang led by Andrés Bonifacio and Magdalo led by Emilio Aguinaldo. Conflict between the two revolutionary leaders ended in the execution or assassination of Bonifacio by Aguinaldo's soldiers. Aguinaldo agreed to a treaty with the Pact of Biak na Bato and Aguinaldo and his fellow revolutionaries were exiled to Hong Kong.
It was the opposition to the power of the clergy that in large measure brought about the rising attitude for independence. Spanish injustices, prejudice, and economic oppressions fed the movement, which was greatly inspired by the brilliant writings of José Rizal. In 1896 revolution began in the province of Cavite, and after the execution of Rizal that December, it spread throughout the major islands. The Filipino leader, Emilio Aguinaldo, achieved considerable success before a peace was patched up with Spain. The peace was short-lived, however, for neither side honored its agreements, and a new revolution was made when the Spanish-American War broke out in 1898.
The Spanish-American war started in 1898 after the USS Maine, sent to Cuba in connection with an attempt to arrange a peaceful resolution between Cuban independence ambitions and Spanish colonialism, was sunk in Havana harbor. After the U.S. naval victory led by Commodore George Dewey defeated the Spanish squadron at Manila Bay on May 1, 1898, the U.S. invited Aguinaldo to return to the Philippines, which he did on May 19, 1898, in the hope he would rally Filipinos against the Spanish colonial government. By the time U.S. land forces had arrived, the Filipinos had taken control of the entire island of Luzon, except for the walled city of Intramuros Manila, which they were besieging. On June 12, 1898, Aguinaldo declared the independence of the Philippines in Kawit, Cavite, establishing the First Philippine Republic under Asia's first democratic constitution. Their dreams of independence were crushed when the Philippines were transferred from Spain to the United States in the Treaty of Paris (1898), which closed the Spanish-American War.
Concurrently, a German squadron under Admiral Diedrichs arrived in Manila and declared that if the United States did not grab the Philippines as a colonial possession, Germany would. Since Spain and the U.S. ignored the Filipino representative, Felipe Agoncillo, during their negotiations in the Treaty of Paris, the Battle of Manila between Spain and the U.S. was alleged by some to be an attempt to exclude the Filipinos from the eventual occupation of Manila. Although there was substantial domestic opposition, the United States decided neither to return the Philippines to Spain, nor to allow Germany to take over the Philippines. Therefore, in addition to Guam and Puerto Rico, Spain was forced in the negotiations to hand over the Philippines to the U.S. in exchange for US$20,000,000.00, which the U.S. later claimed to be a "gift" from Spain. The first Philippine Republic rebelled against the U.S. occupation, resulting in the Philippine-American War (1899–1913).
Link:
http://www.philippinecountry.com/philippine_history/spanish_colonization.html 
