United Kingdom Foreign Secretary William Hague has told the British Parliament that the UK is ready to reopen its embassy in Tehran that was closed two and a half years ago.
Full diplomatic relations between the UK and Iran were suspended after attacks on the British Embassy in the Iranian capital in 2011.
The election of a new Iranian President and agreement on how to deal with Iran's nuclear programme has resulted in increased contact between the two countries in 2014.
UK-Iran diplomatic relations were suspended after an attack on UK embassy
"On Saturday I telephoned Foreign Minister Zarif to discuss the progress we have made to date and our common interest in continuing to move forward in the UK-Iran bilateral relationship. I have therefore now decided the circumstances are right to reopen our embassy in Tehran," Hague said in a statement.
"There are a range of practical issues that we will need to resolve first. However, it is our intention to reopen the embassy in Tehran with a small initial presence as soon as these practical arrangements have been made. I expect the Iranian government will similarly choose to take steps to reopen its embassy in London," he said.
The move comes as in the Iranian neighbourhood, Iraqi forces are engaged in heavy clashes with Sunni Islamist militants across the country and reports saying that Iran is providing military assistance to its historic rival.
Hague, who announced his decision in the House of Commons, said, "Inevitably, the initial embassy presence will only be able to offer a limited range of services at first.
For the time being, Iranians will still need to apply in Abu Dhabi or Istanbul for visas for travel to the UK."
"But encouraging people to people contact is an important priority and something that I hope we will be able to make progress on as the Embassy grows in size and capability over the following months," he said.
The appointment of a UK-based British charge d'affaires to Tehran last year was seen as a sign of a thaw in relations and the paving of way for the possible reopening of the embassy.
However, the UK government still has concerns about Iran's role in Syria, where it is supporting the government of Bashar al-Assad in its fight against rebel groups and its backing for Hezbollah in Lebanon.
Britain's move comes after the US yesterday said it is open to any "constructive" discussions with Iran over the deteriorating security in Iraq.
"We are open to discussions if there's something constructive that can be contributed by Iran if Iran is prepared to do something that is going to respect the integrity and sovereignty of Iraq and the ability of the government to reform," Kerry said.
The US broke off diplomatic relations with Iran in 1980 after 52 of its embassy staff were held hostage in Tehran.