"There is no doubt at all that it will be the end of the private maritime industry in Spain," Alvaro Platero, president of the association PYMAR which represents Spain's 19 shipbuilders, told a news conference.
The body's secretary general Almudena Lopez de Pozo estimated the amount of state aid in question at about €3 billion ($4 billion), received between 2005 and 2011, of which the shipbuilders feared having to pay back 95 percent.
"That would mean the loss of 87,000 jobs in the shipyards and in the auxiliary industry," she said.
The European Union's commissioner for competition, the Spaniard Joaquin Almunia, warned that EU rules for fairness in state aid implied it may have to be paid back, but he defended the shipbuilders.
He told an economic conference in Madrid on Thursday he would ask the European Commission to spare them any repayments.
"The proposal I am making states that the aid received by this sector is incompatible with the system of state aid" authorized by Brussels, he said.
"But the shipbuilders are not obliged to pay it back and no one can make them responsible for paying back this aid," he said.
Almunia said that those who should be made to pay were the investors who funded projects which also received state aid and the shipping companies that bought the resulting vessels.
Lopez complained however that the shipbuilders themselves would in turn face legal action from those penalized to compensate them and would miss out on contracts.
The association said six Spanish shipyards had shut down in recent years and the sector had lost contracts for 50 ships due to concerns over the commission's enquiries into the state aid.
Almunia said he had asked the commission, the European Union's executive body, to rule on his proposal by July 17th.