The British Council, the cultural arm of the government, has halted operations in Tehran, complaining its local staff have been intimidated, Reuters reported.
BBC News quoted British Council chief executive Martin Davidson as saying most of its 16 local employees had been summoned to the Iranian Office of the President in December, where they were ordered to resign from their posts.
"The British Council has suspended its operations in Tehran," it said in a statement on its website on Wednesday. "The decision became effective on 31 January and follows cases of intimidation of our local staff in Iran."
"The aim is to reach an agreement with the Iranian authorities as soon as possible so that we can get back to the business of building cultural relations with a country that historically has enjoyed strong links with the UK," it added.
In recent years, the British Council came under pressure as Anglo-Russian relations deteriorated. Russia forced the closure of some regional offices, saying they were not legal, and tax inspectors filed claims against it, although a Russian court later threw out most of the claims.
Britain is among world powers urging Iran to comply with U.N. demands over its nuclear program, including halting uranium enrichment. Iran says its program is for power generation, not building an atomic bomb as the West suspects.
Foreign Office Minister Bill Rammell said on Wednesday Britain believed Iran was just years away from developing a nuclear capability and said London was prepared to go it alone with tougher sanctions if necessary.
A Foreign Office spokesman said it was "very disappointed" the council had had to suspend Iranian operations. "The British Council is a non-political organization and the Iranian harassment of British Council staff is unacceptable," he said.
The British Council reopened in Tehran in 2001. Since then it has staged the first Western theater production and the first exhibition of Western sculpture in Iran for more than 25 years.
A spokesman for the Iranian embassy in London was not immediately available for comment.