Tensions over the territory known as "the Rock" have ebbed and flowed over the years, but they spiked again Friday when draft guidelines setting out the EU's position in upcoming negotiations stipulated Spain must have a say over whether any post-Brexit deal is extended to Gibraltar.
A European source said the clause "was added at the request of (Spanish Prime Minister) Mariano Rajoy".
Fearing that Spain is trying to take advantage of Brexit to impose its control over the 32,000-strong rocky outcrop on the country's southern tip, Gibraltar reacted angrily, and London pledged its support for a territory ceded to Britain in 1713 but long claimed by Madrid.
"The Spanish government is a little surprised by the tone which the United Kingdom has adopted, a country known for being phlegmatic," Spanish Foreign Minister Alfonso Dastis retorted Monday.
Rocky history
The clause means that Spain, which will still be a member of the European Union when Britain leaves, could potentially block Gibraltar's access to a trade accord negotiated between the bloc and London.
Madrid argues that Gibraltar must not be included in Brexit negotiations, as it is not fully recognised by the international community as an integral part of the United Kingdom.
The United Nations defines it as "non-self-governing territory", a special status that means it is administered by Britain but is not formally part of it.
Seizing the opportunity soon after Britain voted to leave the EU in June last year, Madrid proposed to share sovereignty over Gibraltar with London, which it argued would allow the Rock to remain in the 27-member bloc.
But Gibraltarians had already rejected such a proposal in a 2002 referendum, and they want to stick with the Union Jack despite voting by 96 percent to remain in the EU.
Spain has a history of putting pressure on Gibraltar's tiny land border on which the territory depends for many of its supplies, tourists and workers.
Dictator Francisco Franco closed the border altogether in 1969, all but stranding inhabitants who had to rely on air and boat links until it was fully re-opened in 1985.
More recently, Spain's conservatives upped checks at the border in 2013, creating hours-long logjams and forcing the EU to intervene.
Madrid could therefore ask for concessions in exchange for keeping trade fluid across the border.
'Britain on the defensive'
Dastis, who met with Brexit minister David Davis Sunday evening, tried to ease tensions on Monday, saying Madrid did not want "to put stumbling blocks in relations with the United Kingdom, or with the people of Gibraltar".
After all, some 10,000 Spaniards cross the frontier to work in Gibraltar every day, aiding a border region plagued by unemployment.
Still, according to Jonathan Eyal, associate director of the RUSI military think tank, "Brexit allows Spain to beef up its claim to have a say over Gibraltar".
"It puts Britain on the defensive and reminds Britain that when it comes to anything in Europe, the other member states will rally to support each other," he said.
For Richard Whitman, a Europe expert at the Chatham House think tank, Gibraltar is just one issue that "illustrates how complicated it is to forge a new agreement with the UK".
But he adds that it is unlikely to escalate out of control given the large number of Britons who live in Spain -- more than 300,000 officially, and likely far more as many do not register as residents or spend only part of their time in the country.
"The UK will need a good relationship with the Spanish government, particularly if there is the prospect of a sort of cliff-edge Brexit, or if it looks as if a full deal might not be done with the EU in time," he says.
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