It is a small square, set away on the far side of the magnificent Alhambra complex, but friends say the Placeta Joe Strummer inaugurated on Monday evening in the southern Spanish city of Granada would have delighted the Clash frontman.

With its white walls, reddish sand, pine trees, carved drinking fountain and views of the spectacular Sierra Nevada, the square reverberated on Monday night to the sound of Spanish Bombs, London Calling and other Strummer songs as musician friends from Britain and Spain gathered to celebrate.

"He liked the city a lot," said Esperanza Romero, whose family first brought Strummer to what would become one of his favourite cities. "For me he was like a soul brother."

Romero and Strummer shared a west London squat when he was a struggling musician and her sister Paloma was the future Clash singer's girlfriend – sparking his interest in Spain and the city where their brother Fernando was studying, Granada.

"He was just one more of the crowd, but very charismatic. He always had time for people and was very warm and accessible," she said.

The Spaniards helped introduce him to the culture of southern Andalusia and the work of Granada's most famous poet, Federico García Lorca, who was shot by a rightwing death squad during the Spanish civil war and buried in an unmarked mass grave in the hills above the city.

Strummer later included both Lorca and Granada in his 1979 song Spanish Bombs on the London Calling album, and once tried to find and dig up the poet's grave. "He was very interested in anything that had the smell of freedom and of revolution," Romero said.

Paloma went on to become Palmolive, the drummer in the punk group the Slits, before moving to the US and becoming a committed born-again Christian.

Esperanza went out with Richard Dudanski, the drummer in Strummer's pre-Clash band, the 101ers, who later played with the former Sex Pistols singer Johnny Rotten in Public Image Ltd. The couple eventually moved to Granada.

After Strummer and his fellow band member Paul Simonon sacked the guitarist, singer and songwriter Mick Jones in 1983, the Clash began to fall apart and he sought refuge in Granada.

Joe Strummer playing with the Clash in 1979. Photograph: George Rose/Getty Images

It took locals a while to recognise the by now internationally famous musician. "At first I thought he was some drunk," José Ignacio Lapido, whose punk-rock band 091 Strummer went on to produce, told the British film-maker Nick Hall. "He had his little notebook with him and he showed me the poems he had in English."

Strummer was in Spain when critics panned This is England, the single from the band's final album, Cut the Crap. "I just went, 'Well fuck this,' and fucked off to the mountains of Spain to sit sobbing under a palm tree," he said later. He eventually found a house in nearby Almeria, bought – and managed to lose – a prized Dodge car, and produced an album for 091.

A Facebook campaign to name a city square after him began last year, and it turned out that even Granada's conservative-run city hall contained some Clash fans. "It got into the local newspaper, the socialists made the proposal and finally all parties voted in favour," Dudanski said.

Monday night's acoustic jam session brought together family, including Strummer's daughters Jazz and Lola, and friends, including musicians from the Pogues, the 101ers, 091 and his backing group in the three years before his 2002 death, the Mescaleros.