Spain's Guardia Civil police released a video purportedly of its divers inspecting and measuring one of 70 concrete blocks dropped by Gibraltar into the surrounding sea to create a hotly disputed reef.
"The act of diving itself constituted a serious violation of British sovereignty but this apparent interference with the reef is a new and worrying aspect," said the Gibraltar Governor, Sir Adrian Johns.
The police action was a "blatant attempt" to exercise jurisdiction in waters over which Gibraltar claims sovereignty, he said in a statement.
Spain, too, claims ownership of the waters around the self-governing territory which measures just 6.8 square kilometres (2.6 square miles) and is home to about 30,000 people.
Johns said the police dive was "particularly unhelpful" in the light of Gibraltar's "conciliatory position" in a heated row over sovereignty and fishing rights in the tiny British-held territory.
Gibraltar's government, too, criticised the Spanish police action, issuing a statement saying the "serious incursion will not assist in de-escalating the present tensions".
Last month, Gibraltar dropped the concrete blocks into disputed waters to create an artificial reef, saying it wanted to protect marine life.
Spain is demanding Gibraltar remove the reef, protesting that it prevents its fishermen from operating in waters over which Madrid, too, claims sovereignty.
In an interview published in Spain's El Mundo newspaper , the head of Gibraltar's government, Chief Minister Fabian Picardo, said the reef would remain because it did not significantly obstruct Spanish fishermen.
But Picardo seemed to hold out an olive branch, too, saying the 59 Spanish fishing boats that traditionally operate in the contested waters off Gibraltar would be allowed to return.
"I will propose to parliament that it introduce a reform to the legislation so that the 59 boats can return to fishing on the basis of their traditional practice," he said.
Gibraltar bars fishing with nets but Spanish fishermen had been exempted under a 1999 agreement that Picardo's government scrapped early last year.
Picardo said his proposal was a response to the mayor of the neighbouring Spanish port of La Linea, who had asked him for an act of good faith, and not a retreat in the face of pressure from Spain.
Since the dispute erupted, Spain has imposed strict checks at the border with Gibraltar, creating hours-long queues. Spain says it is cracking down on tobacco smuggling but Britain accuses it of retaliating over the reef.
The European Commission has said it will send observers to the border at the invitation of both Madrid and London.
The enclave of Gibraltar, strategically placed at the mouth of the Mediterranean on Spain's southern tip, was ceded to Britain under a 1713 treaty, but Madrid has long argued that it should be returned to Spanish sovereignty.
London says it will not do so against the wishes of Gibraltarians, who are staunchly pro-British.