A British Foreign Office statement said Nicholas Hopton, previously British Charg? d'affaires in Tehran, has been upgraded to ambassador.
"This comes a year after the reopening of the embassy in Tehran and marks an important step forward in the two countries' diplomatic relations," Xinhua news agency cited the statement as saying.
Foreign Secretary Boris Johnson said: "The upgrade in diplomatic relations gives us the opportunity to develop our discussions on a range of issues, including our consular cases."
He expressed the hope that the move will mark "the start of more productive cooperation" between Britain and Iran on issues such as implementation of the nuclear deal and the expansion of the trading relationship.
Hopton has served at the British embassies in Paris, Rome and Rabat before becoming ambassador to Yemen.
Relations between Britain and Iran deteriorated in the early 2010s in the wake of new British sanctions against Iran. The two countries agreed to restore full diplomatic relations in 2014.
