Britain shut down the Iranian embassy in London and expelled all its staff on Wednesday, saying the storming of the British diplomatic mission in Tehran could not have taken place without some degree of consent from Iranian authorities.
Foreign Secretary William Hague also said the British Embassy in Tehran had been closed and all staff evacuated following the attack on Tuesday by a crowd who broke through gates, ransacked offices and burned British flags in a protest over sanctions imposed by Britain on the Tehran government.
It was the most violent incident so far as relations between the two countries worsen due to a wider dispute over Iran's nuclear programme.
Hague said Iranian ambassadors across the European Union had been summoned to receive strong protests over the incident. But Britain stopped short of severing ties with Iran completely.
The Iranian charge (d'affaires) in London is being informed now that we require the immediate closure of the Iranian embassy in London and that all Iranian diplomatic staff must leave the United Kingdom within the next 48 hours, Hague told parliament.
We have now closed the British embassy in Tehran. We have decided to evacuate all our staff and as of the last few minutes, the last of our UK-based staff have now left Iran.
It was the worst crisis between Britain and Iran since full diplomatic relations were restored in 1999, 10 years after Ayatollah Ruhollah Khomeini's fatwa to kill author Salman Rushdie for his book The Satanic Verses.
Hague said it was fanciful to think the Iranian authorities could not have protected the British embassy, or that the assault could have taken place without some degree of regime consent.
This does not amount to the severing of diplomatic relations in their entirety. It is action that reduces our relations with Iran to the lowest level consistent with the maintenance of diplomatic relations, he added.
Prime Minister David Cameron chaired meetings of the government's crisis committee on Tuesday night and again on Wednesday morning to decide London's response.
But mindful of the 1979 seizure of the U.S. embassy in Tehran, when radical students held 52 Americans hostage for 444 days, Britain waited till all its two dozen diplomatic staff and dependents had left the country to announce its move.
IRAN ELITES FEUD
While the attack raises tensions between Iran and the West, it also exposes widening divisions within Iran's ruling elite over how to deal with the increased international pressure as sanctions take their toll on the already stagnant economy.
The protest appeared to be a move by the conservatives who dominate parliament to force President Mahmoud Ahmadinejad to heed their demand to expel the British ambassador.
Ahmadinejad and his ministers have shown no willingness to compromise on their refusal to halt Iran's nuclear work but have sought to keep talks open to limit what sanctions are imposed.
The West believes the programme is aimed at building a nuclear weapon, a charge Tehran strongly denies.
It was planned and organised by the students, but it was not something that came from the government, said Mohammad Marandi, an associate professor at Tehran University.
The students were telling me days before that they were planning to be there in large numbers. They said some students would try (to storm the embassy), he said. I don't think the government is happy with what happened.
Conservative newspapers trumpeted the embassy seizure.
The daily Vatan-e Emrouz declared Fox's den seized, referring to Britain's nickname the old fox which reflects a widely held view in Iran that the former imperial power still wields great power behind the scenes in Iranian and international affairs.
While Iranian police at first did not stop the protesters storming the embassy gates, they later fired teargas to disperse them and freed six Britons held by demonstrators.
Iran's Foreign Ministry expressed its regret for the unacceptable behaviour of few demonstrators.
The protesters hit back at the Foreign Ministry and police.
While the protesting students were seeking to answer to the plots and malevolence of this old fox in support of the decision of the revolutionary parliament to expel the ambassador of the British government we witnessed the harsh blow of the police on these students, said a statement by a group calling itself the Islamic community of seven Tehran universities.
We expected the police to be on the side of the students instead of confronting them.
Britain last week banned all its financial institutions from any dealings with Iran, including its central bank, after a report by the U.N.'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.
The United States and Canada also tightened their sanctions on Iran last week but France is pressing for more.
France is advocating sanctions on a scale that would paralyse the regime: freezing of central bank assets and an embargo on hydrocarbon exports, French Foreign Minister Alain Juppe said in an interview in a weekly news magazine.
Referring to an EU meeting on Iran in Brussels on Thursday, Juppe said: We want to reach a common position so that the pressure will be utmost. We cannot keep letting the Iranians take us for a ride.
The protesters stormed the main British embassy in downtown Tehran, smashing windows, torching a car and burning the British flag, while at the same time, another group broke into a British diplomatic residential compound at Qolhak in north Tehran.
Several sources told Reuters that diplomats had had their movements restricted by protesters and one said staff in the main British embassy had been herded into a room while protesters ransacked the premises.
Both properties were severely damaged, with official and personal possessions looted or destroyed, said sources who had spoken to embassy staff. One described the scene as carnage.
There was a heavy police presence outside the British embassy on Wednesday with patrol cars on every corner and police officers stationed on foot every few metres.
EU ambassadors met in Tehran on Wednesday to discuss the security of their staff and premises. Norway said it had temporarily closed its embassy but other European missions were operating normally.
(Additional reporting by Hossein Jaseb and Mitra Amiri in Tehran, Adrian Croft in London and Parisa Hafezi in Istanbul; Writing by Jon Hemming)