The draft guidelines drawn up by the European Council president Donald Tusk state that the Brexit deal will not apply to Gibraltar unless agreed by Madrid.
Earlier this month, Spanish Foreign Minister Alfonso Dastis met with the Commission's Brexit negotiator Michel Barnier, and later stated that any future relationship between Gibraltar and the European Union must be agreed between Spain and the United Kingdom.
Spain must approve the applicability of a future agreement to territory of Gibraltar.
The guidelines are due to be formally approved by leaders of the remaining 27 European Union countries at an extraordinary summit in Brussels on April 29.
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.
Describing its future "as even more British after Brexit than it is now", he said: "The whole of Europe will see that Spain is trying to abuse this moment for her own selfish political purposes".
The clause could be interpreted as handing Spain a veto over the Gibraltar provisions in a post-Brexit deal if they don't like it.
"What we are seeing is a clear manifestation of the predictably predatory attitude that we anticipated Spain would seek to abusively impose on its partners", he added.
"This will surprise no-one".
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Unless Theresa May is prepared to sacrifice the future of Gibraltar's 30,000 inhabitants to secure a good deal for the rest of the United Kingdom then she could have to make concessions to Spain.
"It is what we wanted and what we have said from the beginning".
"We have been firm in our commitment never to enter arrangements under which the people of Gibraltar would pass under the sovereignty of another state against their wishes, nor to enter into a process of sovereignty negotiations with which Gibraltar is not content". However, on the same day she told MPs that the United Kingdom considered the territory to be "covered by our exit negotiations".
Yet members of Spanish Prime Minister Mariano Rajoy's cabinet have acknowledged the difficulty of reaching an agreement on joint sovereignty with London that will also be accepted by the 32,000 inhabitants of Gibraltar.
Liberal Democrat foreign affairs spokesman Tom Brake said: "Theresa May must urgently produce a plan that protects the citizens of Gibraltar, including their businesses and communities".
"It is our obligation to support our overseas territories, and any attempt to brush off the importance of this issue is a dereliction of duty by the Government". "The Rock depends on free movement of labour from Spain, and on its place in the Single Market to support its vital services industries".
Tory MP Bob Neill tweeted that there would be "no sell out" by the British Government. "There will be no sell out".
The EU has effectively handed Spain a veto over the future of Gibraltar in its Brexit negotiating guidelines.
The party believes it now falls to the UK's negotiating team to translate goodwill towards Gibraltar into action and reject outright such a prejudicial position to Gibraltar's long term interests. "There will be no negotiation over the status of Gibraltar".