Iran's Guardians Council on Monday approved a parliamentary bill demanding Britain's ambassador to Tehran be expelled within two weeks, making it law, state television's website reported.
The confirmation by the council, whose jurists and clerics vet parliamentary texts to ensure they adhere to Islamic and constitutional rules, means Iran's foreign ministry now has to apply the measure.
Britain has threatened to act "robustly" if the expulsion is carried out.
Iranian lawmakers on Sunday passed the bill in retaliation for fresh Western sanctions over Tehran's nuclear programme, in particular Britain's announcement it was "ceasing all contact" between its financial system and that of Iran.
The law calls for diplomatic ties between Iran and Britain to be downgraded to the more junior charge d'affaires level, and for trade and financial ties to be reduced to a minimum.
It also contains a clause warning that other countries could also be punished if they followed Britain's lead.
"After discussions, members of the Guardians Council have passed the law unanimously," Guardians Council spokesman Abbas Ali Kadkhodaei said, as quoted by the television's website.
Britain unveiled its new sanctions on Iran on November 14, in conjunction with similar measures by the United States and Canada.
They based their step on a report by the UN atomic energy watchdog a week earlier that strongly suggested Tehran was researching nuclear weapons.
EU nations were expected to unveil more sanctions against Iran at a foreign ministers' meeting on Thursday. France has called for a freeze on Iranian central bank assets and an embargo on Iranian oil.
Britain and Canada have embassies in Tehran. The United States does not, having closed it after Iran's 1979 Islamic revolution. Canada's mission is already headed only by a charge d'affaires.
Britain on Sunday described the vote to expel its ambassador, Dominick Chilcott, as "regrettable."
"If the Iranian government acts on this, we will respond robustly in consultation with our international partners," a Foreign Office spokesman said.
"This unwarranted move will do nothing to help the regime address their growing isolation or international concerns about their nuclear programme and human rights record," the spokesman added.
Chilcott only took up his position last month. Previously, Britain's mission was headed by the charge d'affaires.
A protest against the new Western sanctions was planned for Tuesday in front of the British embassy, according to Iran's Fars news agency.