There is some paperwork to complete when you relocate to live in on a permanent basis in Lanzarote. My advice would be to tackle one thing at a time, expect some difficulties and consider employing a paperwork expert to help you if you get stuck.
Currently extranjeros (foreigners) are only provided with a sheet of A4 green paper which is your certificate to show you are resident in Spain. You should notify the Oficina de Extranjeros if you are planning to stay longer than three months, although your main residence is still determined by the country you live in for more than 6 months of the year.
For residencia you need to visit the Oficina de Extranjeros which is located in the Comisaría de Policía building in the Puerto Naos area of Arrecife.
COMISARÍA DE POLICÍA
C/ Mastelero, s/n, 35500, Arrecife, Lanzarote, Las Palmas
Telephone: 928 844 266
Opening hours: Monday to Friday from 9am to 2pm
To apply for residencia you need to complete the form EX18, supply three residencia sized photographs (30mm x 25mm) and show a valid passport and your rent contract, escritura (property deeds) or certificado de empadronamiento as proof of residence in Spain.
There is now an English & German speaking representative at the police station who can help with the application if you don't speak Spanish.
When you arrive, approach the man at the desk on the right hand side, explain that you would like to become resident in Lanzarote and he will give you a copy of the form EX-18 and Modelo 790 together with an appointment to come back. I have attached copies of these forms below just for your information.
There is a fee of €10.20, this is paid at any bank using the TASA Modelo 790 form you were given. Next complete the form EX-18 solicitud de certificado de registro de residencia comunitaria where indicated and take the originals plus copies of all your documents back with you to the police station.
You will need to allow for at least two visits to the police station during the process, one to collect the forms, the next to submit the forms, the third to collect your residencia certificate. The good news is that the process is short and it is possible to obtain your residencia within a week.
As the current form of the residencia does not have a photo identification this document is not classed as ID and must be supported with a valid passport. The residencia certificate is valid for 10 years if it states "residente comunitario con caracter permanente en Espana" otherwise it is valid for 5 years.
For residencia you need to visit the Oficina de Extranjeros which is located in the Comisaría de Policía building in the Puerto Naos area of Arrecife. 
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