(Adds statement from Gibraltar authorities)
MADRID Aug 11 Crime gangs may be smuggling cigarettes from Gibraltar to Spain, EU investigators have concluded following a dispute last year over tougher controls that Madrid imposed on its border with the British territory.
A year-long investigation by the European Union anti-fraud office (OLAF) conducted at the request of Spain found potential links between an increase in the size of the Gibraltar market for cigarettes between 2009 and 2013 and a rise in smuggling and a larger illicit market in southern Spain.
"The concerns include indications of the involvement of organised crime," OLAF's press department said in a statement on Monday, stating it had sent findings to both the Spanish General State Prosecutor and the Gibraltar Attorney General.
"As OLAF can carry out only administrative investigations, it is for those authorities to decide what further actions may be necessary," said the statement emailed to Reuters.
Britain has run Gibraltar, a rocky outcrop off Spain's southern coast, since Madrid ceded the land 300 years ago. But Gibraltar, and the waters surrounding it, remain a disputed territory with Spain claiming it as its own.
A Spanish court official said a High Court investigation would be opened in response to the OLAF report.
Gibraltar authorities said in a statement they had already taken steps to control more tightly the tobacco market and offered to carry out with Spain joint investigations into the smuggling of cigarettes.
Gibraltar accused Spain last year of using heavy handed border controls to disrupt day-to-day traffic across the frontier in reaction to an artificial reef they erected in the bay.
But Spain said the extra checks were necessary to prevent tobacco smuggling and that Gibraltar does too little to stem what it calls an increasing flow of contraband cigarettes out of the territory, which has a low sales tax.
Cigarettes are about 40 percent cheaper on "the Rock" - Gibraltar's nickname - than in Spain.
In November, European Commission inspectors urged Britain to improve safeguards against tobacco smuggling and said both sides should exchange intelligence on the problem.
Britain has said it is working to help halt smuggling. Spain has kept up the strict frontier checks although traffic tailbacks have eased with people trying to avoid rush hour trips and making fewer journeys in general. (Reporting by Paul Day; Editing by Mark Heinrich and Crispian Balmer)