Under the proposed EU regulation, Britons will be able to visit the EU without a visa for up to 90 days even if there is no Brexit deal. But the UK objected to language used in the agreement, which described Gibraltar as a "colony”. Diplomats said the British ambassador to the EU raised the issue in a meeting of EU envoys.
A British spokeswoman said: "Gibraltar is not a colony and it is completely inappropriate to describe in this way."
Tensions over Gibraltar have been running high between the UK and Spain, which is taking advantage of Brexit to ramp up its claim to the British Overseas Territory.
It comes as the UK is at a deadlock with the bloc over Brexit, with less than two months until Britain’s exit date on March 29.
Prime Minister Theresa May is set to return to Brussels to seek “alternative arrangements” to replace the controversial Irish backstop after the Commons voted in favour of Tory MP Sir Graham Brady’s