Madrid has insisted the ship was in Spain's own territorial waters.
Talk of the war followed the EU's declaration that Madrid would have a veto on the inclusion of Gibraltar in any post-Brexit trade deal.
Events were held during the weekend to mark the 35th anniversary of the Falklands War, when Britain under then-Prime Minister Margaret Thatcher fought off an Argentine invasion of the disputed archipelago in the South Atlantic.
Although there was no reference to Spain's claim to sovereignty in the Brexit negotiating guidelines released by European Council president Donald Tusk last week, the decision to give Madrid a specific role in deciding if a trade deal will apply to the Rock caused deep unease in Westminster.
The future of Gibraltar, a rocky British outpost on Spain's southern tip, has become the first major dispute of the exit negotiations since Prime Minister Theresa May filed the formal divorce papers on March 29.
Prime Minister Mrs May vowed not to trade away the Rock's sovereignty in pursuit of a trade deal with the European Union as the United Kingdom withdraws from the bloc.
Gibraltar was taken from Spain in 1704 and ceded to Britain in 1713.
Spanish Foreign Minister, Alfonso Dastis, said the Spanish government would no longer prevent an independent Scotland from joining the European Union (EU).
But Gibraltar's Chief Minister Fabian Picardo has vowed the territory will not be used as leverage in the upcoming Brexit talks.
"Keep calm and negotiate", France's Barnier said, in English, to reporters in Luxembourg when asked what he would say to London to reassure them on the issue.
Downing Street said it would not be sending a task force to Gibraltar but did not condemn Lord Howard's comments.
In a 2002 referendum, Gibraltarians rejected by 98 percent a proposal for joint British-Spanish sovereignty.
A former leader of PM Theresa May's Conservative party said she would even be prepared to go to war to defend the territory.
"I am confident that with Mr Davis' assertion to me that the United Kingdom will not agree to future agreements that exclude Gibraltar, we will be able to enjoy those exact same benefits in Gibraltar in the future".
Among the negotiation lines of the Brexit (British withdrawal from the Community club) the European Union established that Madrid would have veto power over any agreement reached between London and Brussels over the disputed rock, located in the southern point of the Iberian península.