The Iranian officials said they had been releases five of the nine detained staff of British embassy who arrested on accusations of stoking post-election unrest, a move that further threatened tense ties with London and the West.
AFP reported this announcement came as Iran's top election board started their partial recount of the fiercely-disputed presidential election, after demonstrators from the opposition parties defiantly faced off against riot police in Tehran.
Hassan Ghashghavi foreign ministry spokesman said that "Out of nine people arrested, five have been released."
Iran has repeatedly accused Britain and the United States of "meddling" in the violent aftermath of their presidential election, which then triggered the biggest crisis since the Islamic revolution 30 years ago.
But even as the international community voices continuing alarm over the situation in Iran, Ghashghavi said Tehran no plans to close embassies or downgrade diplomatic ties with foreign nations.
The Fars news agency, announcing the arrests on Sunday, said the embassy staff had played a "considerable role" in the unrest that swept Iran after the disputed re-election of President Mahmoud Ahmadinejad on June 12.
Intelligence Minister Gholam Hossein Mohseni Ejeie accused the embassy of sending local staff "undercover among rioters in order to push its own agenda," the official IRNA news agency reported.
British Foreign Secretary David Miliband said London had protested strongly over the arrests, which he described as "harassment and intimidation" and dismissed as baseless claims the embassy was behind the unrest.
EU nations also vowed to respond to any harassment of diplomats in Iran with a "strong and collective response", Miliband told reporters at an EU foreign ministers' meeting in Corfu.
But Iranian Foreign Minister Manouchehr Mottaki -- who has previously said Tehran was considering downgrading its ties with London after the two nations expelled diplomats -- urged Britain and the EU not to take rash action over the arrests.
"Don't continue with this losing game because this is neither in the interests of the British people nor the two countries' relations that have (already) been damaged because of the British government's behaviour," he said.
Against the backdrop of diplomatic tensions, Iran began a partial recount of ballots cast in the election that the opposition claims was marred by widespread irregularities and fraud.
"The Guardians Council has started a partial recount of 10 percent of the ballot boxes," state-owned Arabic-language television Al-Alam said.
The opposition is demanding a complete rerun of the vote and has staged massive demonstrations in a dispute that has shaken the very foundations of the Islamic regime.
On Sunday, riot police in Tehran dispersed about 3,000 supporters of Ahmadinejad's strongest rival Mir Hussein Mousavi who defied a ban on public gatherings, witnesses said.
A witness spoke of a "minor confrontation" between police and the demonstrators who had gathered around Ghoba mosque to mark the anniversary of a prominent cleric killed in a bombing 28 years ago.
The information could not be independently verified as foreign media are banned from the streets under tough new restrictions imposed by the authorities in the wake of the election.
The Guardians Council, an unelected body of 12 jurists and clerics, has set up a committee to conduct the recount but Mousavi and fellow defeated candidate Mehdi Karroubi rejected the panel and declined to send any representatives to oversee the count.
Karroubi, a reformist former parliament speaker, insisted in a letter to the council on Sunday that a partial recount was "not enough" and called for an independent body to probe "all aspects of the election."
Mousavi, who was prime minister in the post-revolution years, won 34 percent of the vote against 63 percent for Ahmadinejad, a gap of 11 million votes, according to official results. Karroubi came a distant fourth with less than one percent.
The Paris-based International Federation for Human Rights said on Sunday that more than 2,000 people are still in detention and hundreds more are missing across Iran since a government crackdown on protesters and opposition supporters.
Since the election at least 17 people have been also killed and many more wounded in clashes with security forces, according to state media.
Among those arrested are reformists, journalists and analysts, including supporters of Mousavi and even some figures closed to top officials, in a sign of cracks appearing within the regime over the election.
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