The issue has grown into a foreign policy test for Sanchez's five-month-old minority government.
German Chancellor Angela Merkel says she hopes Spanish reservations about the status of Gibraltar can be overcome by the time EU leaders meet to sign off on the draft Brexit deal.
Merkel said that while her Government backs the agreement "we still have the reservations of Spain and I can't say how we will solve this issue."
British Prime Minister Theresa May said she has made progress in Brexit negotiations at talks with European Commission President Jean-Claude Juncker, but that outstanding issues remain.
May said that "further progress has been made" in drawing up a political declaration on future relations between Britain and the EU after Brexit on March 29.
She said the two sides have "given sufficient direction to our negotiators, I hope to be able to resolve the remaining issues and that work will start immediately."
The meeting with Juncker lasted just over 90 minutes. May said she will return to Brussels at the weekend for more talks, including with the Commission President.
An EU summit is planned for Sunday, but it remains unclear whether it will go ahead.
May again suggested that if Parliament rejects the draft divorce deal, the UK could end up not leaving the bloc at all.
The withdrawal agreement has drawn strong opposition from UK MPs — especially pro-Brexit politicians who want Britain to make a clean break with the EU.
They say the agreement will keep Britain bound to EU rules over which it has no say.
Andrew Rosindell, an MP from May's Conservative Party, urged her Wednesday to change course and cut away "the tentacles of the EU over our cherished island nation."
During the prime minister's weekly House of Commons question period, May replied that Britain wanted "a close trading relationship with the European Union" after Brexit.
She warned that if Parliament rejected her deal it could mean "more uncertainty, more division, or it could risk no Brexit at all."
- AP