The EU is to send a fact-finding mission to Gibraltar to explore Spain's border control measures and the escalation of the diplomatic crisis over the Rock.
The decision came after prime minister David Cameron threatened to take legal action. He warned that tighter border controls, introduced in response to an artifical reef built by Gibraltar that has angered Spanish fishermen, broke EU free movement rules.
In a phone call to spanish PM Mariano Rajoy, European Commission president Jose Manuel Barroso was hipeful that Madrid and London could resolve the row in line with their EU membership.
"They agreed that a commission fact-finding mission should examine the border control/movement of people and goods questions," a European Commission spokesperson said.
Spain has maintained that the controls, which have created hours-long queues at the crossing, were set up to tackle tobacco smuggling.
The measures started after the Gibraltar government dumped 70 concrete blocks in disputed waters in a bay near the airport.
Madrid said it was an "unacceptable unilateral act" that damaged the livelihood of fishermen and the environment. The Gibraltar government insisted that the reef was created to preserve fishing stocks fora marine reserve.
The dispute led to a swift souring in diplomatic relations.
A British Royal Navy warship has arrived in Gibraltar for a pre-planned naval exercise in the Mediterranean.
HMS Westminster arrived hours after a flotilla of Spanish fishing boats entered Gibraltarian waters to protest against the reef. About 40 vessels were corralled by a Gibraltar fleet.
Cameron's spokesman refused to rule out further tit-for tat moves, including possible measures against Spanish tourists visiting Britain.
"Our preference is to resolve this via political means and through dialogue with the Spanish government," a number 10 spokesman said.
"We clearly want to reach a quick resolution which is acceptable and brings an end to these totally disproportionate border checks.
"We will do what we need to do to bring this to a satisfactory conclusion."