Gibraltar's chief minister has accused Spain of "sabre-rattling like North Korea" after it threatened to impose sanctions on the Rock.
Fabian Picardo said Spanish foreign minister Jose Garcia-Margallo was being belligerent by threatening to charge workers almost £90 a day to cross the border.
Prime Minister David Cameron has also now weighed in, with Downing Street saying he is "seriously concerned" by the escalating row.
A spokesman said: "The Spanish have not raised the prospect of introducing border fees with us. We are seeking an explanation from them regarding reports that they might target Gibraltar with further measures."
Mr Garcia-Margallo had suggested a levy on workers travelling from Gibraltar could be used to help Spanish fishermen who have lost out because of damage to fishing grounds allegedly caused by Gibraltarian authorities.
But Mr Picardo told Sky News: "The 10,000 Spanish workers that come into Gibraltar every day, they would be on the hook for 100 euros - 50 in and 50 out - when they might earn less than that each day.
"I think this is quite a silly remark for the Spanish foreign minister to have made. He is sabre-rattling a la North Korea. It almost makes you feel like you are listening to the politics of Franco in the 1950s and 60s."
In a separate interview, he said that the border costs would violate European Union freedom of movement rules.
Fabian Picardo (left) and Jose Garcia-MargalloHe also warned "hell will freeze over" before the Gibraltarian authorities remove an artificial reef Madrid claims is harming the interests of Spanish fishermen.
And he branded the possibility of Spain closing its airspace to flights from the Rock dangerous and the "politics of madness".
The Foreign Office has already voiced concerns over Mr Garcia-Margallo's comments and said Britain would not compromise its sovereignty over Gibraltar.
A spokesman made clear that the UK expects Madrid to live up to the commitments it made in the 2006 Cordoba Agreement.
These include deals on issues like border crossings and access for flights, as well as establishing a tripartite forum for regular dialogue between Britain, Spain and Gibraltar.
Spain's main opposition party, the Spanish Socialist Workers Party (PSOE) accused Mr Garcia-Margallo of "dynamiting" dialogue on issues affecting workers, fishermen and traders.
Its spokesman for EU affairs Juan Moscoso del Prado said: "You cannot threaten 50 euro fees when there are more than 10,000 people who go there every day to work. Workers should not be taken hostage by this conflict."
The dispute over the status of Gibraltar escalated recently following a number of alleged Spanish incursions into the territory's waters.
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.
However, the UK Government has made clear that it will not negotiate over sovereignty as long as Gibraltar's people want to remain British.
Foreign Secretary William Hague last month phoned Mr Garcia-Margallo to complain about Spain ramping up border checks, which forced drivers to wait for up to seven hours in searing heat.
On Sunday, the Foreign Office summoned the Spanish ambassador, to demand assurances that there would be no repeat of the excessive checks.
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