The offending entry is in the Royal Spanish Academy's annual update to its dictionary, the ultimate authority on the language in Spain and Latin America.
The new edition removed a previous definition of "gitano" or "gypsy" as an adjective meaning "defrauding or operating with deception".
But it added a new secondary definition, saying the word was synonymous with "trapacero" -- an adjective meaning dishonest or swindling.
An association of gypsy women's rights activists said the modification was a meaningless cosmetic change.
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One activist, Patricia Caro Maya, said the academy's definition of gypsy "has always had false connotations of stealing and cheating as a cultural characteristic of ours."
The academy declined to comment on the issue to AFP, but cited the introduction to its dictionary, which says it takes care to avoid "gratuitously slanted or offensive" definitions.
It says it seeks definitions that reflect genuine "linguistic usage" and insists that language "reflects beliefs and perceptions that remain present in society".
The gypsy women's association called for a protest rally in front of the academy's headquarters in Madrid on November 7.