Iran's foreign minister has called for the "immediate withdrawal" of UK troops from Basra, in southern Iraq.
Tony Blair said UK troops were in Iraq with the Iraqi government's backing
Manouchehr Mottaki claimed the presense of the British was "destabilising" security in the city.
But Tony Blair dismissed the comments, saying Mr Mottaki's aim was to "divert attention" from concerns over Iran's stability.
Mr Blair reiterated that UK troops were in Iraq with a UN mandate and backing from the Iraqi government.
UK forces are facing rising hostility after the release of a video appearing to show troops beating Iraqi civilians.
Basra's provincial council suspended relations with UK forces over the video.
UK newspaper the News of the World carried images it said came from a video shot in 2004. The video has been aired repeatedly on Iraqi television. Three soldiers have been arrested over the film.
Britain's 8,000 troops have their headquarters in Basra.
Mr Mottaki made his comments through an interpreter to reporters on a visit to Lebanon.
"The Islamic Republic of Iran requests the immediate withdrawal of British forces from Basra," he said.
Iranian officials have repeatedly blamed British agents in Iraq for an outbreak of ethnic unrest across the border in Iran's mainly Arab south-eastern province of Khuzestan.
Mr Mottaki also called on the new Iraq government, to be formed after the inauguration of parliament later this month, to put "an immediate stop to the US occupation".
Mr Blair said there was "no point trying to divert attention from the issues to do with Iran by calling into question the British presence in Iraq".
"The reason we remain there is the desire of the Iraqi people to have a democracy, to elect their own government and to have the same rights and liberties that we enjoy, whether in Germany - in Britain. Our job is to help them get that," he said.
Meanwhile in Basra local protests are planned for Saturday and city councillors have spoken of what they say are heavy-handed tactics by troops and a need for better communication.