Foreign Secretary William Hague said the British Embassy in Tehran had been closed and all staff evacuated following the attack on November 29 by a crowd that ransacked offices and burned British flags in a protest over sanctions imposed by Britain on Tehran.

Iran warned that Britain's closure of the Iranian embassy in London would lead to further retaliation.

The incident on November 29 was the most violent so far as relations between the two countries steadily deteriorate due to Iran's wider dispute with the West over its nuclear program.

On top of its ban on British financial institutions dealing with Iran and its central bank last week, Britain has called for further measures and a diplomatic source said London would now support a ban on oil imports from the Islamic Republic.

It was the worst crisis between Britain and Iran since full diplomatic relations were restored in 1999.

Britain imposed sanctions on the Iran central bank last week after a report by the UN's International Atomic Energy Agency suggested Iran may have worked on developing a nuclear arsenal.

Iran, the world's fifth biggest oil exporter, says it only wants nuclear technology to generate electricity.