The EU is calling on Spain and Gibraltar to crack down on tobacco smuggling across the border between the two countries, citing concerns about the involvement of organised crime.

Wrapping up a one-year investigation, the European Anti-Fraud Office (Olaf) said in a statement that it had "raised a number of concerns" to UK and Spanish officials regarding its investigation into the increase of cigarette smuggling across the frontier. While the report was not made public, Olaf noted "a significant increase in the size of the Gibraltar market for cigarettes over the past four years" and that "the concerns include indications of the involvement of organised crime".

The investigation was sparked by a complaint from Spanish authorities to the EU that between 2006 and 2011, Gibraltar nearly tripled the amount of tobacco it brought in. The Spanish government claims that much of this tobacco was then sold illegally in Spain.

Hovering at around €26 (£20) a carton, tobacco prices in Gibraltar are much cheaper than in Spain, where the cost generally ranges from €40 to €44.

According to figures from Spanish government officials, the amount of tobacco brought into Gibraltar has continued to rise in recent years, from 110m packs of cigarettes in 2012 to 117m packs in 2013. The figures, they argue, are excessive for the 30,000 or so inhabitants of Gibraltar. "Every resident of Gibraltar, including children who are nursing, would have to smoke nine packs of cigarettes each day," one government source told El País.

After three visits to Gibraltar in the past year, Olaf said on Monday that the increase in tobacco being brought into Gibraltar was of concern, given its links to "the subsequent increase of cigarette smuggling across the frontier and corresponding increase in size of the illicit market in southern Spain."

Noting that its only role is to carry out administrative investigations, Olaf called on Spain and Gibraltar, via the UK Representation to the EU, to "initiate judicial proceedings" related to the concerns raised in the report.

Spanish authorities welcomed the Olaf findings. "Spain's only goal is to ensure that international and EU laws are followed," Spain's foreign minister, José Manuel García-Margallo, told reporters on Sunday. Spanish courts are expected to open an investigation into the matter in the coming weeks, reported Spanish media.

Contraband tobacco is one of several contentious issues that has been at the forefront of tensions between London and Madrid over Gibraltar. The diplomatic spat flared up last summer, after Spain complained that an artificial reef created by Gibraltar was disrupting its fishing boats.

In a move seen by many as retaliatory, Spain tightened controls at its shared border with Gibraltar, leading to long waits for those trying to enter the British overseas territory.

Spanish authorities maintain that the increased checks at the border are necessary to crackdown on tobacco smuggling. In the first five months of this year, Spanish border police said they have detected more than 2,500 offenders travelling from Gibraltar to Spain carrying illegal amounts of tobacco.

After months of pressure from groups on both sides of the border, last month Spain announced it would create a special "fast lane" for workers who need to travel between Gibraltar and Spain, in a bid to ease the disruption to their commutes.

The plans were slammed by the Gibraltar government, who argued that everyone – from tourists to residents – should have the same freedom of movement with respect to entering the British outpost. "The reality is that the Spanish authorities make life difficult for people and vehicles crossing the border, for political reasons and because they want to," the Gibraltar government said in a statement. "All that Madrid has to do is improve the flow rate of cars and persons and operate proper red and green channels."

A Foreign Office spokeswoman said: "The Olaf report raises concerns about cigarette smuggling over the frontier, an illicit market in southern Spain, and the involvement of organised crime. Following its most recent visit to the Gibraltar-Spain border, the European Commission recognised the commitment the Government of Gibraltar has made to tackle tobacco smuggling and the significant steps taken to date, including restricting the number of cigarettes allowed in the area around the land border to 200 per person.

"The Government of Gibraltar remains ready to work directly with their Spanish counterparts to tackle this issue. But at the same time, the Commission raised concern about the lack of progess by the Spanish in addressing its recommendations and said that the Spanish checks giving rise to several hours waiting times at the Gibraltar/Spain border are disproportionate, a point that the UK government has made consistently clear for some time."