The British government is reported to be considering imposing sanctions on Iran in response to the seizure of a British-flagged oil tanker in the Strait of Hormuz on Thursday.
The Sunday Telegraph has reported that Foreign Secretary Jeremy Hunt will announce the diplomatic and economic measures tomorrow in response to the apprehension and detention of the Stena Impero.
It said the UK may also seek the reimposing of UN and EU sanctions which were lifted against Iran in 2016 as part of the 2015 International nuclear deal with Tehran.
Mr Hunt said Iran's actions raise "very serious questions" about the security of British and international shipping in the Strait of Hormuz.
Speaking after a meeting of the emergency committee Cobra, he said the vessel was seized in Omani waters in "clear contravention of international law".
He told reporters that, having spoken to his Iranian counterpart, Mohammad Javad Zarif, Tehran saw the situation as a "tit for tat" following the detention of Grace 1 in Gibraltar.
"Nothing could be further from the truth," he said.
"Grace 1 was detained legally in Gibraltarian waters because it was carrying oil, against EU sanctions, to Syria, and that's why the Gibraltarian authorities acted totally with respect to due process and totally within the law.
"Stena Impero was seized in Omani waters in clear contravention of international law, it was then forced to sail into Iran", he said.
Mr Hunt said British MPs would be updated about what "further measures" the government will take tomorrow, adding that the threat level had been raised to three.
"Our priority continues to be to find a way to de-escalate the situation", said Mr Hunt.
Iran has released footage of the Revolutionary Guard boarding the Stena Impero.
Iran said the British flagged tanker, and 23 crew, was involved in an accident with an Iranian fishing boat and had then ignored distress calls.
Britain's defence minister Tobias Ellwood denied that the UK had taken its "eye off the ball" and said the government was looking at a "series of options".
Mr Ellwood said the UK had vessels going through 100 nautical miles of waterway every day, adding: "It is impossible simply to escort each individual vessel."
Asked if sanctions were off the table, Mr Ellwood said: "Cobra was taking place yesterday, so we're looking at the operational responsibilities from that but, yes, we are going to be looking at a series of options."
Speaking on Sky News, Mr Ellwood also called for more money to be invested in defence if Britain wants to continue to play a role on the international stage.
He said: "If we want to continue playing a role on the international stage - bearing in mind that threats are changing - all happening just beneath the threshold of all-out war, then we must invest more in our defence, including our Royal Navy.
"Our Royal Navy is too small to manage our interests across the globe if that's our future intentions and that's something the next prime minister will need to recognise."