Gibraltar's chief minister has told Sky News the territory "is not going to be a political pawn in Brexit" and will become even more British after leaving the union.
Draft Brexit negotiating guidelines, sent out on Friday, contain a clause suggesting that Spain will be able to veto any future trade deal between the EU and the UK.
The clause has inflamed tensions over the status of 'the Rock', which has been held by the UK since 1713 and is home to UK military bases.
Chief minister Fabian Picardo said that Spain was "employing her unhealthy obsession with Gibraltar and bringing it to the table of a very complex negotiation already".
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Insisting that the guidelines would allow Spain "to discriminate against the British people of Gibraltar", he said: "Gibraltar is not going to be a political pawn in Brexit, neither is it going to be a victim of Brexit.
"Gibraltar is going to be very prosperous, very successful and entirely British before, during and after Brexit."
Mr Picardo said he had spoken to Foreign Secretary Boris Johnson, who he described as "implacable" in the defence of the rights of Gibraltar.
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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 European Council's negotiating principles state: "After the United Kingdom leaves the Union, no agreement between the EU and the United Kingdom may apply to the territory of Gibraltar without the agreement between the Kingdom of Spain and the United Kingdom."
It hands Spain, which has long held ambitions to reclaim sovereignty of the territory, significant power over Gibraltar's future.
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 UK then she could have to make concessions to Spain.
The draft guidelines also stipulate that the UK must settle its Brexit bill and agree the future of EU citizens in the UK before trade deal talks could start.
Julie Girling, MEP for the South West of England and Gibraltar, told Sky News: "There is something that the Spanish want that we have... fishing grounds. Let's start telling them how tough we're going to be in this area."
Labour MP and Open Britain campaigner Mary Creagh said "Brextremists" had destabilised the situation in the British Overseas Territory.
"The decision to leave the European Union has thrown Gibraltar's future up into the air," she said.
Up to 12,000 people who live in Spain come to work in Gibraltar every day.
Some 96% of Gibraltar's citizens voted to remain in the EU in last year's referendum.
In 2002, they also voted to reject the idea of shared sovereignty between the UK and Spain, with 99% of citizens voting to remain under British jurisdiction.