Arab League chief Amr Moussa on Wednesday urged Spain to withdraw from the disputed islet of Leila and start talks with Morocco immediately, Egypt's official MENA news agency reported.
During his phone talks with Spanish Foreign Minister Ana Palacio, Moussa also stressed the need to return the island's status to its previous situation.
Moussa said Arab-Spanish relations are strong enough to overcomethe problem that could be settled through "diplomatic and friendly means."
He added that he will meet with Palacio in the coming days for consultations in this respect.
Earlier in the day, Moussa also talked with Moroccan Foreign Minister Mohamed Benaissa on the matter over phone.
The disputed islet is 200 meters off Morocco's coast in the Straits of Gibraltar. The status of the tiny island has been ambiguous since the Spanish protectorate over Morocco came to an end in 1956.
A dozen of Moroccan soldiers set foot on the uninhabited island and raised Morocco's flag last Thursday in a claimed bid to combat illegal immigrants leaving for Europe and terrorism, sparking protests from Spain.
Spain, backed by the European Union, has demanded Rabat withdrawthe soldiers, arguing that their presence violated Spanish sovereignty over the island, which is also claimed by Morocco.
On Wednesday morning, Spanish forces drove a small Moroccan force out of the islet, known as Perejil to the Spanish and Leila to the Moroccans.
Moussa told reporters on Tuesday that Arab states have fully backed Morocco in its dispute with Spain.