Footage obtained by The Sun Online shows the ship being escorted along the coastline by a tiny Royal Navy boat.
The video also reveals the warship is broadcasting the Spanish National Anthem on loudspeakers at the same time.
It was believed to have been filmed earlier today, though the Royal Navy and Foreign Office did not respond to a request for comment.
A source told The Sun Online: "It's taken from a boat on the east side of the Rock… well within our waters.
"As it is sailing through you can just about see the small Royal Navy boat going behind it.
"They were quite cheeky about it, they think they have the high moral ground. Obviously it keeps getting worse every time. I think to be honest with this memorandum of understanding we're going to be losing our waters.
"We keep giving away concessions. It's not looking very good for us."
Another source said: "I'm pretty sure if it's not an act of war it's pretty close – to have a ship incursion playing its own national anthem."
The ship is believed to be the Infanta Elena, a Descubierta-class 1980s Spanish corvette.
The provocation comes amid tensions between Spain and Britain over Gibraltar's sovereignty following Brexit.
Spain even threatened to boycott a recent EU summit unless Theresa May publicly committed to conceding a UK-EU trade deal won’t automatically cover Gibraltar.
Madrid issued the extraordinary demand following a meeting with Michel Barnier in Brussels, saying it would block the Brexit deal if the PM refused.
In September the British Navy was forced to fire a warning flare at a Spanish vessel after it got too close to a nuclear submarine in Gibraltar.
The HMS Talent was leaving the British controlled port with a police escort when a patrol boat from the Spanish Guarda Civil approached the “hunter killer” sub which had been loaded with missiles.
But the British navy were forced to act when repeated radio warnings to back off were ignored.
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