Britain's embassy in Iran is to reopen today in a sign of the diplomatic thaw between the two countries which have had a suspicious and hostile relationship for decades.

British Foreign Secretary Philip Hammond is flying to Tehran with Treasury minister Damian Hinds and a trade delegation for a ceremony later to mark the move. It coincides with the reopening of Iran's embassy in London.

The UK has had no diplomatic presence in Tehran since protesters angry over nuclear-related sanctions stormed the British embassy in 2011, but the election of Hassan Rouhani as president has brought about a significant improvement in relations.

Plans to reopen the embassy were announced by the British government last year as relations between London and Tehran improved and Iran's strategic position came under the spotlight as the crisis sparked by Islamic State grew in neighbouring Iraq.

Last month, Iran struck a historic deal after a decade of negotiations with world powers over its nuclear programme, with some sanctions being lifted in return for allowing inspections.

Mr Hammond said: "Our relationship has improved since 2011. President Rouhani's election and last month's nuclear agreement were important milestones. I believe that we have the potential to go much further.

"Reopening our embassies is a key step to improved bilateral relations. In the first instance, we will want to ensure that the nuclear agreement is a success, including by encouraging trade and investment once sanctions are lifted. Britain and Iran should also be ready to discuss the challenges we both face including terrorism, regional stability, the spread of Isil (IS) in Syria and Iraq, counter-narcotics and migration.

However, Mr Hammond remained cautious: "This move does not mean that we agree on everything. But it is right that Britain and Iran should have a presence in each other's countries. The role of embassies is to build co-operation where we agree and to reduce our differences where we don't."

Initially, the embassy will be headed by a charge d'affaires, but Mr Hammond said an agreement on upgrading to full ambassador status is expected to be reached in the coming months.