Juventus striker Morata was the only player carried over in the starting lineup from Saturday's 2-1 friendly win over Albania in Barcelona, with coach Luis Enrique rotating his squad.
Yeremy Pino added a third in the 47th minute from close range, with Morata coming off nine minutes later
Sarabia then headed in a fourth in the 61st minute, moments after he had come on, and made it 5-0 in the 72nd minute.
The match continued Spain's build-up to the Nations League and World Cup in Qatar in November and December, a tournament Iceland have failed to qualify for.
It was the first time the national side had played in the northwest city's Riazor stadium since 2009, when they beat Belgium 5-0 in a qualifier for the 2010 World Cup in South Africa that Spain went on to win.