|Iran's president has five days to sign the bill before Iran's foreign ministry can enforce the downgrade in ties [AFP]
Iran's constitutional watchdog has ratified a bill that reduces diplomatic relations with Britain following London's decision to impose sanctions on Iranian banks
State radio said the Guardian Council ratified the bill on Monday after parliament approved it a day earlier.
The bill requires both Iran and Britain to withdraw their ambassadors and reduce representation to the level of charge d'affaires.
European Union ambassadors plan to meet in Tehran on Monday to discuss their response to the decision.
"Clearly we regret their decision to expel our ambassador," a spokesman for British Prime Minister David Cameron told reporters
"I think that decision will do nothing to help the Iranian regime address its growing isolation from the international community."
Last week, the UK imposed new sanctions against Tehran which will cut off all financial ties with Iranian banks.
Already strained relations between the two countries have worsened following a report by the UN nuclear watchdog stating that Tehran may be working on developing nuclear weapons.
Tehran denies the charges made in the November 8 report and insists its nuclear programme is a peaceful one.
The US, Canada and UK have all responded to the report with further sanctions against Iran, while Israeli President Shimon Peres said that the likelihood of a military strike against Iran was "now closer to being applied than the application of a diplomatic option".
Iran has hinted that it would respond to a military strike from Israel or the US by shutting down the Strait of Hormuz, a major oil transport route, and ratcheted up its rhetoric by saying that Washington would not be able to militarily respond to a strike by Iran.
"They will be forced to extend their hand for a diplomatic resolution," said Sardar Mohamad Reza Naghdi, commander of Iran's Basij armed group, during an interview on Iranian state television on Sunday.
"Not only will they not be able to attack us, but they also won't be able to respond to an attack from us," said Naghdi.
He said that the US has neither the economic will, nor the support of its own people, or backing from the Iranian public, for such a move.
Naghdi also said that US forces are surrounded by Hezbollah within the region and said that the Basij was "counting the moments" waiting for an excuse to "put an end to the Zionist agenda".