That came to a head in July when Gibraltar authorities sunk 70 concrete blocks to form an artificial reef designed to boost fishing stocks but also preventing Spanish boats from operating in their traditional fishing grounds.
Spain retaliated by imposing stringent checks at the border leading to queues of up to eight hours, a measure described as "disproportionate and politically motivated" by Downing Street.
This week Spain's foreign minister insisted that Britain force the removal of the artificial reef and called for bilateral talks on sovereignty to begin a dialogue ruled out by both London and Gibraltar.
Instead Mr Picardo has sought to diffuse tensions with a pledge to support local fishermen as long as they acted in an environmentally sound and legal manner. The new legislation will be presented to Gibraltar's parliament in October.
He insisted however, that it was not a sign Gibraltar was backing down under pressure from Spain.
"It has nothing to do with the situation applied by Spain at the border and the threats being made at a political level," the 41-year-old leader said.
He explained that the reforms came after consultation with local fishing groups and at the urging of the mayor of the La Linea, the Spanish town at the frontier, who had asked Gibraltar for a "show of good faith".
The artificial reef, which replicates one of more than 100 placed along the Spanish coast, only affects one particular fishing boat The Divina Providencia whose captain is accused of using illegal raking methods to harvest shellfish.
"We have determined that there is no reason to move the blocks because we are not doing anything that really affects these fishermen's ability to fish," Mr Picardo added.
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