Britain has turned its fire on the EU over its insistence that Theresa May must come to an arrangement with Spain over the future of Gibraltar, if the rock is to be covered by a deal on a transition period.

The EU effectively backed Spain in the centuries-old territorial dispute in April, when its guidelines outlining their approach to the Brexit negotiations insisted Gibraltar would be outside any future trade deal with the UK unless an agreement was reached in advance with Madrid.

Last month the Guardian revealed that this position included any agreement with the EU on a transition period, to cushion Britain’s exit out of the bloc on 29 March 2019.

The latest EU document on bloc’s negotiating position, due to be published on Wednesday, is said to confirm that position.

A UK government source, however, accused Brussels of taking an inconsistent and contradictory position on Gibraltar, over which Spain and the UK have been in dispute for centuries. “If Britain’s overseas territories aren’t included in the transition guidelines it would be a total contradiction in the EU’s own position,” the source said.

“The April guidelines made clear that the article 50 negotiations applied to our overseas territories, and that transition is part of that process. They are also explicit a transition period should use current terms, structures and the acquis [common rights and obligations that binds EU states] – consistency and clarity must flow both ways.”

The British government has not made any approach to Madrid over the future of Gibraltar, Spanish government sources have said. Spain believes the British cabinet, which is wrestling with how to define its vision of a future trading relationship with the EU, has bigger issues to deal with than the fate of the 28,000 people who live on the rock.

“I think the situation with Gibraltar is crystal clear,” a source had told the Guardian. “This is what we are telling the Gibraltarians. If you want to have your existing status, you will have to talk with us.”

Quick Guide What are Brexit options now? Four scenarios Show Staying in the single market and customs union The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election. The Norway model Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules. The Canada deal A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far. No deal Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organization rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish bilateral agreements to deal with the consequences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

Last week the Spanish prime minister, Mariano Rajoy, attending a summit in Brussels, told reporters: “Whatever future agreement between the EU and the UK, there has to be an agreement between Spain and the UK for that to apply to Gibraltar. We also asked that this applies to the transition period.”

Gibraltar’s chief minister, Fabian Picardo, has previously suggested that a hard Brexit would pose an “existential threat”.

Such is the economic importance to Gibraltar of retaining the rights of EU membership that just 4% of the population of Gibraltar voted to leave in the UK’s 2016 referendum.

In October, May claimed she would be fighting for a deal that “works for Gibraltar as well as the United Kingdom”, in response to concerns expressed in the House of Commons that Downing Street was willing to abandon the territory in its effort to secure an EU-UK trade deal.

Clare Moody, the Labour MEP representing Gibraltar, said: “The British government have a moral obligation to ensure that Gibraltar is included in any transition deal should we leave the European Union.

“Leaving the customs union without a transition would be disastrous for somewhere that relies so heavily on its relationship with the EU.

“Theresa May and her government are the only ones who can make this happen, and it’s time for them to step up. If they fail, it will be Gibraltar that suffers more than anyone else.”

The town of Gibraltar, its castle and port were ceded to the UK under the terms of the Treaty of Utrecht in 1713, but the terms of the agreement have been long disputed and Spain has not hidden its determination to bring the rock back under its flag.