Madrid has threatened to retaliate after Argentina announced it will expropriate a subsidiary of Spanish oil giant Repsol.
It warned that the move breaks a "good understanding" between the countries.
Spain will take "all measures it considers appropriate" to defend the interests of Repsol and Spanish businesses abroad, Industry Minister Jose Manuel Soria said.
Spain is considering action on diplomacy, trade, industry and energy, he said.
The government backed the company, which says it will take legal action after Argentinian President Cristina Kirchner announced she would nationalise Repsol's YPF subsidiary.
The European Union warned Buenos Aires that it was sending the wrong signal to investors, who dumped Repsol shares, sending them over 6% lower on the Madrid stock exchange. In New York, trading in YPF remained suspended for a second day yesterday.
Argentina's decision to take a 51% stake of YPF virtually wipes out Repsol's 57.4% holding.
US credit ratings agency Moody's downgraded YPF to B3 from Ba3, warning that a further downgrade was possible. It said the decision reflected "uncertainty regarding how the government will manage YPF, including uncertainty regarding the company's future operating and financial profile."
Repsol executive chairman Antonio Brufau said Argentina's move "will not remain unpunished." Repsol would seek an amount at least equal to the value of its stake, which the firm estimates at $10.5 billion, the Repsol chief said.
"Repsol will launch all legal actions that are within its reach," Brufau vowed, saying he had a wide range of options including constitutional, commercial and civil actions to counter the "manifestly illegal and gravely discriminatory" move.
Spain's government summoned Argentina's ambassador, Carlos Bettini, for the second time in five days to ask why Buenos Aires had ignored warnings against intervening in the Repsol subsidiary.
"Argentina has shot itself in the foot in a serious way," Foreign Minister Jose Manuel Garcia-Margallo told reporters. "What worries me is that this means a cut, or at least distrust, in relations that have been really fraternal for a very long time," he said.
Argentina's deputy economy minister Axel Kicillof, who helped mastermind the takeover, accused Repsol's chief of running up its debt. Kicillof said Brufau had hidden the actual value of the company, after incurring about $9 billion in debt.
Meanwhile, Mexico's President Felipe Calderon has offered strong support to Spain. Mexican state oil company Pemex has a 9.5% stake in Repsol.
And European Union foreign affairs chief Catherine Ashton said Argentina's move sent a "very negative signal" to global investors and was a cause of grave concern. Britain vowed to back Spain and warned Argentina that its efforts to stimulate a trade surplus through protectionism were counterproductive.
Repsol has denied Argentine accusations that it had failed to invest enough in YPF, saying that it had poured $20 billion into YPF in addition to $15 billion it paid to buy the subsidiary in 1999.
Repsol boss Brufau accused Kirchner of taking the decision "as a way of hiding the economic and social crisis which Argentina is suffering." Brufau said YPF accounted for 25.6% of the group's operating profit, 21% of its net profit and 33.7% of its investments, adding: "These are big figures but we can withstand them."