In this paper I examine how local Filipino agrarian elites emerged and consolidated under the Spanish colonial regime and how they are shaped gradually into a solid local ruling class in the Philippines. Local class structure and class formation in a particular society cannot be fully explained without taking into consideration the external impact of world-system and the internal impact of the state. In this paper I propose that the processes of local class formation in the Philippines during the Spanish colonial period are largely shaped by the interaction between (1)external economic forces emanated from the Spanish world-system(from the mid-16th to the mid-18th centrury) and the Anglo-American world-system(from the mid-18th century onward),(2) the structure, composition, attitude and policy of the Spanish colonial state, and(3) socio-economic and structural remnants inherited from the previous local Filipino history. Each of these three sets of factors influences the others and is in turn influenced by them, and they in conjunction produce a socio-economic milieu where the seeds of the indigenous Filipino ruling class could geminate and grow