British Prime Minister David Cameron has said he is "seriously concerned" by reports that Spain may introduce fees at the border with Gibraltar and close its airspace to planes.
Spanish Foreign Minister José Manuel Garcia-Margallo said in an interview yesterday that Spain was considering a €50 charge to cross the border.
He said they were also mulling tax investigations into Gibraltarians who own property in Spain.
Diplomatic tension over the territory grew ten days ago when boats from Gibraltar dumped blocks into the sea to create an artificial reef for fish at the mouth of the Mediterranean.
Spain said the reef would block its fishing boats.
Earlier today, Gibraltar accused Spain of acting like North Korea after Madrid said it was studying retaliatory measures against the British territory.
Gibraltar's chief minister Fabian Picardo said Mr Garcia-Margallo was being belligerent when he suggested the border fee.
Mr Garcia-Margallo said the proceeds could be used to help Spanish fishermen who have lost out because of damage to fishing grounds allegedly caused by Gibraltarian authorities.
Mr Picardo said "hell will freeze over" before the authorities in Gibraltar remove an artificial reef, which Madrid claims is harming Spanish fishermen.
Any border costs would violate European Union freedom of movement rules, he added.
Mr Picardo claimed any such move would be dangerous and said it was the "politics of madness".
He told the BBC Radio 4 Today programme: "What we have seen this weekend is sabre-rattling of the sort that we haven't seen for some time."
A British Foreign Office spokesman yesterday made clear that the UK expects Spain to live up to the commitments it made in the 2006 Cordoba Agreement.
The agreement includes deals on issues like border crossings and access for flights, as well as establishing a three-party forum for regular dialogue between Britain, Spain and Gibraltar.
Spain claims sovereignty over the Rock, which stands on the southernmost tip of the Iberian peninsula but has been a British Overseas Territory since the Treaty of Utrecht in 1713.
The UK government has made clear that it will not negotiate over sovereignty as long as Gibraltar's people want to remain British.