Sailors patrolling off the coast of Gibraltar fired at a red and yellow flag affixed to a buoy.

The crew of Portsmouth-built HMS Scimitar took part in the exercise last week and are said to have hastily removed the buoy when they were approached by a Spanish police boat.

Following the incident, Giles Paxman, the UK's new ambassador in Madrid, was summoned to the Spanish Foreign Ministry for a dressing down.

Officials said he had conceded there had been an 'error of judgement'.

But the ambassador - who has been in post for just a month - denied the crew of HMS Scimitar had been insulting Spain's flag, insisting the sailors had actually been firing at Nato's maritime flag for the number 'one', which shares the same distinctive colours.

Mr Paxman, the younger brother of television news presenter Jeremy Paxman, promised an investigation into the incident.

A Ministry of Defence spokesman said: 'Flag No1 is traditionally used on gunnery targets due to its high visibility - however, we recognise its similarity to the Spanish national flag and will use an alternative marker during gunnery practice in this area in the future.'