EU inspectors have called on Spain and UK authorities to clamp down on tobacco smuggling and money laundering over the Gibraltar frontier, citing evidence that illegal activity including organised crime is on the rise.

The European Anti-Fraud Office (OLAF), which carried out the investigation, recommended that “judicial proceedings” be launched on both sides of the border to tackle the increase in crime.

“The investigation has raised a number of concerns regarding the link between a significant increase in the size of the Gibraltar market for cigarettes over the past four years and the subsequent increase of cigarette smuggling across the frontier and corresponding increase in size of the illicit market in southern Spain,” a spokesman for OLAF told the Telegraph.

“The concerns include indications of the involvement of organised crime,” the spokesman added.

OLAF made its recommendations following visits by EU inspectors to the border after complaints over border checks by Spanish authorities that caused queues of up to eight hours last summer for those wishing to cross.

Spain claimed the border checks were necessary to control tobacco smuggling into Spain, but Britain and Gibraltar complained that they were “politically motivated and disproportionate” and came in retaliation for Gibraltar sinking an artificial reef in its territorial waters disputed by Spain.

A member of the Guardia Civil seizes contraband packs of cigarettes in a car at the border between Spain and Gibraltar in 2013 (Getty)

Spanish media seized on OLAF’s findings as “vindication” for imposing stringent border checks, a measure that has increased tensions between the two European partners over the Rock.

Recognition of the illegal activities being carried out on the tiny British Overseas Territory was a “triumph for the Spanish government” reported Spain’s leading daily newspaper El Pais.

In fact, the OLAF report makes recommendations applicable to authorities on both sides of the border.

“The OLAF final case report and recommendations to initiate judicial proceedings related to the findings of the report have been sent to the Spanish General State Prosecutor and to the Gibraltar Attorney General via the UK Permanent Representation in Brussels,” the OLAF spokesman said.

“As OLAF can carry out only administrative investigations, it is for those authorities to decide what further actions may be necessary.”

Last week in a separate report, the EU Commission accepted that the checks imposed by Spain at the border were “disproportionate”, a description welcomed by Gibralatar’s government.

In a report published last month the European Union rejected Spanish demands that Gibraltar dismantle the artificial reef on environmental grounds, ruling that no environmental regulations had been violated.