Spain failed to obtain a permission from the US administration to sell 12 military planes with U.S. parts to Venezuela. "In a region in need of political stability, the Venezuelan government's actions and frequent statements contribute to regional instability. This proposed sale ... has the potential to complicate the situation," a statement from the U.S. Embassy in Madrid said.
Ambassador Eduardo Aguirre told Foreign Minister Miguel Angel Moratinos of the decision in a meeting Thursday, a ministry spokesman said.
The U.S. Embassy said it did not expect the military sale to damage relations with Spain.
In November, Spain agreed to sell the planes and eight patrol boats to Venezuela in a Ђ1.7 billion (US$2 billion) deal despite U.S. threats to block the sale because it included U.S. parts and technology.
The United States has said it feared the sale would upset the military balance in the region. Spain and Venezuela have insisted the planes would not be used for military purposes.
The aircraft are 10 C-295 transport planes and two CN-235 patrol planes.
Spain and Venezuela insist neither the boats nor transport planes were armed and that the patrol planes were to be used to combat the drug trade in Venezuela, which borders Colombia.
Spain on Friday said the deal would go ahead and insisted the permission refusal had come from the U.S. company responsible for the parts and not from the U.S. government.
Spain has the option of substituting U.S. parts for European ones, but news reports said this could prove too costly.
In its statement, the U.S. Embassy said: "The United States has repeatedly expressed, publicly and privately, its concerns regarding the government of Venezuela:
"Despite being democratically elected, the government of President Hugo Chavez has systematically undermined democratic institutions, pressured and harassed independent media and the political opposition, and grown progressively more autocratic and antidemocratic."
Chavez has accused Washington of hypocrisy for trying to block the sale despite using warplanes to invade Iraq and called it another example of how the United States attempts to dominate weaker countries.
Chavez, an ally of Cuban leader Fidel Castro, has also accused U.S. President George W. Bush of conspiring to overthrow him, which the U.S. government denies.
Washington also has expressed concerns that Venezuela is buying 100,000 Kalashnikov assault rifles from Russia. The first 30,000 rifles are due to arrive in December.
Relations between Spain and the United States also have chilled under Spanish Prime Minister Jose Luis Rodriguez Zapatero, who withdrew Spanish peacekeeping troops from Iraq immediately after he took office in April 2004, the AP reports.