The United States has revoked the immunity status of 16 "diplomats" and asked them to leave the country.
State Department spokesman Richard Boucher said on Wednesday the Saudi nationals would be repatriated because they were not working at the embassy, despite being accredited there.
"They were teaching Islam outside the embassy and therefore not entitled to diplomatic status... I think they are leaving soon."
Boucher also told reporters the action "was related solely to the fact that these individuals did not appear to be engaged full-time in the conduct of diplomatic duties within the Saudi Embassy".
The spokesman added that the State Department's action "was not based on any other information regarding these individuals' activities" and was part of a general review of diplomatic visas since 11 September 2001.
A source at the Saudi Embassy said the decision included only employees at Washington's Institute of Islamic and Arabic Sciences which is affiliated with Imam Muhammad Bin Saud University in Riyadh. Employees and diplomats at the embassy were not included, added the source.
The move could further strain relations between the US and the world's largest oil supplier.
Diplomatic ties have been tense since the hijacked plane attacks believed to have been masterminded by Saudi-born Usama bin Ladin's al-Qaida network.
The Embassy in Washington has refused to comment as has the Institute of Islamic and Arabic Sciences.
The Embassy's web site has a link to the site of the institute, which offers Arabic and Islamic studies courses.
Also on Wednesday, the US embassy in Muscat said the United States has learned of a potential "terrorist threat" to western military interests in the southern portion of the Gulf state of Oman.
Oman served as a staging point
for some US troops last year
The embassy, in a notice to Americans in Oman, said it could not speak to the credibility of the threat but reminded US citizens in the country to maintain heightened security precautions.
"The US government has received an unsubstantiated report of a possible terrorist threat aimed at Western military interests in southern Oman," the notice said.
"US citizens are cautioned to maintain a high level of
vigilance, to remain alert and to take appropriate steps to increase their security awareness," the embassy said.
The notice, gave no details about the source of the threat, its nature or the potential target or targets.
However, the United States and western other nations do have some military presence in Oman and have permission to use certain Omani airbases and the country's territorial waters for naval manoeuvres.
Oman served as a staging point for some US troops in last year's invasion of Iraq and is still used as a transit point for US soldiers and materiel en route to the Gulf, Iraq and Afghanistan.
An estimated 1500 US nationals are in pro-western Oman,
although fewer than 50 of them are believed to be active-duty