Spain's King Juan Carlos told Venezuelan leader Hugo Chavez to "shut up" as the Ibero-American summit drew to a close in Santiago, Chile.
The outburst came after Mr Chavez called former Spanish Prime Minister Jose Maria Aznar a "fascist".
Mr Chavez then interrupted Spanish PM Jose Luis Rodriguez Zapatero's calls for him to be more diplomatic, prompting the king's outburst.
Latin American, Portuguese, Spanish and Andorran leaders were meeting in Chile.
'Democratically elected'
Mr Chavez called Mr Aznar, a close ally of US President George W Bush, a fascist, adding "fascists are not human. A snake is more human."
Mr Zapatero said: "Former President Aznar was democratically elected by the Spanish people and was a legitimate representative of the Spanish people."
Mr Chavez repeatedly tried to interrupt, despite his microphone being turned off. The king leaned forward and said: "Why don't you shut up?"
According to reports, the king used a familiar term normally used only for close acquaintances - or children.
Later, Mr Chavez responded to the king's rebuke.
According to the Associated Press news agency, he said: "I do not offend by telling the truth. The Venezuelan government reserves the right to respond to any aggression, anywhere, in any space and in any manner."
The theme of this year's 22-nation summit was "social cohesion".
Earlier, a row between neighbours Argentina and Uruguay threatened to overshadow the summit.
The long-running dispute erupted anew after Uruguay gave an operating permit to a paper mill despite unresolved environmental objections by Argentina.
On Saturday, scores of Argentine protesters staged a peaceful protest against the setting up of the plant, which they fear could contaminate their crops.
Some of the marchers carried banners reading "No to the paper plant!". Police stopped them from marching across a bridge into Uruguay.
'Stabbed in the back'
Uruguayan President Tabare Vazquez granted a long-awaited start-up permit to the mill on Thursday - hours after giving a conciliatory speech at the summit, which he ended by hugging outgoing Argentine President Nestor Kirchner.
On Friday, Uruguay announced it had closed its border crossing with Argentina closest to the mill in Fray Bentos.
The moves led to protests from the Argentine delegation in the Chilean capital, with Mr Kirchner blaming Mr Vazquez for putting an end to efforts by King Juan Carlos to mediate a resolution to the dispute.
"You have stabbed the Argentine people in the back," Mr Kirchner told his counterpart according to the official Argentine news agency Telam.
This is the latest instalment of a two-year row.
The Finnish owners of the pulp mill - the biggest foreign investment in Uruguay - insist it employs the latest technology and will not pollute. But Argentina disagrees and has taken the case to the International Court in The Hague, whose ruling is pending.
That dumb clown Chavez. Is there anyone who takes him seriously?
On a side note, is the Uruguay paper mill on the border with Argentina? If it is, would moving the site away from the border resolve the issue?
I imagine that the plant in question probably needs to be on the Rio de la Plata, which separates the two countries. Uruguay does not have any other major rivers but that one (well, and the Rio Negro, but that is the chief tributary to the Rio de la Plata the way the Missouri is to the Mississippi).
