About 15,000 people commute daily from Spain to Gibraltar. | Archives

Spain and Gibraltar want to reach a side deal with Britain to avoid having a hard EU border in southern Spain after Brexit, but have stumbled on "a lack of political will" in London, a Spanish diplomatic source said.

The source said any deal aimed at creating a "shared prosperity zone" in Gibraltar, a British territory over which Spain claims sovereignty, was unlikely before a full Brexit agreement.

That broader deal remains uncertain just two months before Britain's post-Brexit transition period ends.

"We've made our suggestions, explored technical solutions on how to get there. What is lacking is the political will to close the deal. The ball is in the United Kingdom's court," the source said on Wednesday.

Failure to reach a side deal on Gibraltar would carry a heavy social, economic and political cost, the source said.

The British Foreign Office did not immediately respond to a request for comment.

Gibraltar has welcomed Spain's "pragmatism" on its key demand that their mutual border remain fully open, and the source expressed hope that that spirit would ultimately prevail.

About 15,000 people commute daily from Spain to Gibraltar, which has a population of 32,000.

The port at the northern tip of the Mediterranean, which Spain ceded to Britain in 1713 after a war, also welcomes some 10 million tourists per year, a sector accounting for about a quarter of its economy.

Spain has agreed to put the issue of its sovereignty claim to one side to focus on the opportunity to keep the border with Gibraltar open.