The European Union has angered the UK by describing Gibraltar as a “colony of the British crown” whose sovereignty is disputed by Spain.

In a proposed regulation that could see Britons granted visa-free access to the EU even in the case of a no-deal Brexit, the bloc made a distinction between those living in the UK and those who are citizens of Gibraltar — a British overseas territory in southern Spain.

“Gibraltar is a colony of the British Crown. There is a controversy between Spain and the United Kingdom concerning the sovereignty over Gibraltar, a territory for which a solution has to be reached in light of the relevant resolutions and decisions of the General Assembly of the United Nations,” the EU document says.

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A spokesman for British Prime Minister Theresa May said it was “unacceptable” to describe Gibraltar as a crown colony.

A UK government spokesperson said Gibraltar "is not a colony and it is completely inappropriate to describe in this way."

“Gibraltar is a full part of the UK family and has a mature and modern constitutional relationship with the UK. This will not change due to our exit from the EU. All parties should respect the people of Gibraltar’s democratic wish to be British”.

The row came amid reports that Spain will insist on excluding Gibraltar from all agreements between the UK and the EU after Brexit.

“In every agreement reached with Great Britain there will be an asterisk which explains that the deal will not affect Gibraltar,” a Spanish diplomatic source told Reuters earlier this week.

Spanish Prime Minister Pedro Sanchez has said the country intends to revive its bid for shared sovereignty over "The Rock".

Spain has long claimed sovereignty over Gibraltar, a rocky peninsula attached to southern Spain by a narrow causeway. The area has been a British territory since 1713.