A clause has been inserted in the EU's draft Brexit negotiating guidelines that appears to allow Spain to exclude Gibraltar from any transitional single market access arrangement or future trade deal with the United Kingdom if it is not satisfied with the status of the territory.
In guidelines unveiling the EU's position in upcoming negotiations for Britain to exit the bloc, a clause stipulates that Spain must have a say over whether any post-Brexit deal applies to the tiny rocky outcrop at the southern tip of the Iberian peninsula Madrid has long wanted back.
The agreement has yet to be finalised but it handed Spain a diplomatic victory as it still lays claim to the overseas territory which it ceded to Britain in 1713.
Gibraltar has a population of around 32,000 and 96 per cent of the residents who voted in the Brexit referendum voted to remain in the EU.
Gibraltar faces an uncertain future after Brexit, with Spanish ministers suggesting they'll seek joint sovereignty of the territory.
The successful lobbying by Spanish diplomats will inflame tensions over United Kingdom sovereignty on the Rock which has been contested by Spain since the United Kingdom took control of Gibraltar in 1713.
Spanish Foreign Minister Alfonso Dastis told the national parliament on Wednesday that Madrid would oppose extending EU-UK trade arrangements to Gibraltar to protect its economic interests in the area.
Up to 12,000 people who live in Spain come to work in Gibraltar every day.
Rows between Spain and Britain over Gibraltar have held up entire European Union deals in the past - including current legislation governing air travel - and Brussels is keen to avoid a new bilateral dispute getting in the way of an orderly Brexit. Gibraltar's chief minister says he wants a special deal in negotiations with the European Union including preserving freedom of movement and access to the single market - although it is far from clear that can be achieved.
In 2002, they also voted to reject the idea of shared sovereignty between the United Kingdom and Spain.
Mr Picardo said: "The whole world and the whole European Union should know: this changes nothing in respect of our continued, exclusive British sovereignty".
Speaking after the June Brexit vote, Spain's acting foreign minister Jose Manuel Garcia-Margallo said he hoped that to seeing the "Spanish flag on the rock [Gilbraltar]" was "much closer" to becoming reality.
The Gibraltar question remains a fractious one for the U.K. -Spain relationship.
"It's predictable that, given Spain's previous behavior, they would try and use Brexit as a fig leaf for trouble-making over the status of Gibraltar", Lopresti said Friday.