Protests took place outside the UK embassy in Tehran
The UK has ordered the expulsion of two Iranian diplomats in a tit-for-tat action after Tehran also ordered two UK diplomats to leave the country.
Prime Minister Gordon Brown told MPs he had no choice but to respond after Iran had made allegations that were "absolutely without foundation".
The two diplomats were accused by Iran of "activities incompatible with their status", the Foreign Office said.
Mass unrest on the streets of Tehran has been blamed by Iran on the UK.
The prime minister told the House of Commons: "Iran yesterday took the unjustified step of expelling two British diplomats over allegations which are absolutely without foundation.
Paul Adams Diplomatic correspondent, BBC News
"One casualty of Iran's deepening political crisis has been Britain's already delicate diplomatic relationship with the Islamic Republic.
"Iran's decision to expel two British diplomats follows days of anti-British rhetoric from the leadership in Tehran, including strong words last Friday from Iran's supreme leader, Ayatollah Khamenei - who described Britain as the 'most treacherous' of Iran's enemies.
"Until recently, the United States was singled out as the Islamic Revolution's principal opponent. This has changed.
"By offering an 'open hand' to Iran since taking over as president, Barack Obama has challenged Iran's traditional view of the 'Great Satan'.
"Britain, almost by default, has emerged as the target of Iranian ire. "
"In response to that action, we informed the Iranian ambassador today that we would expel two Iranian diplomats from their embassy in London."
The protests, which erupted after the results of presidential elections were contested, have left at least 10 people dead in the capital.
Mr Brown added that the outcome of the elections should reflect the aspirations and choices of the people there.
"The onus is on Iran to show the Iranian people that recent elections have been credible and that the repression and curtailment of democratic rights that we've seen in the last few days will cease," he said.
The Foreign and Commonwealth Office (FCO) did not specify the identities of the individuals being expelled from Iran, except to say they are diplomats, rather than support staff, and the British Ambassador is not one of them.
An FCO spokesman said the Iranian Ambassador was summoned to the Foreign Office earlier to be told two Iranian diplomats holding equivalent positions in London were also being asked to leave by the end of the week.
He said the action was "regrettable" but the UK had been forced to respond.
The spokesman added that Tehran had claimed the British diplomats had been "involved in activities incompatible with their status".
The BBC's James Robbins said the allegation, which the UK rejected, is usually cover for an accusation of espionage.
He added that the British Ambassador pressed Iranian authorities to give specific examples of what "incompatible activities" the British diplomats had been involved in, but they did not offer any.
Prime Minister Gordon Brown announced the move in the House of Commons
BBC News world affairs editor John Simpson says it is significant the Iranian action is not worse, such as throwing the British ambassador out or closing the embassy.
He said that was down to divisions going right to the top of the Iranian government, with some elements wanting to calm the situation down.
Conservative leader David Cameron supported the decision to expel the Iranian diplomats.
He said: "The expulsion of diplomats by Iran is clearly not acceptable and the British government was absolutely right to respond."
Iran has singled out the UK in its widespread condemnation of what it calls meddling by foreign powers in its affairs.
The BBC's decision to start a Persian language TV service, earlier this year, has also angered the authorities.
The service has no correspondent in Tehran, but on Sunday the government expelled the BBC's English language correspondent.
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