Britain and Iran on Thursday officially resumed diplomatic relations which were severed by London after students stormed its Tehran embassy in November 2011.
"The UK has agreed with Iran that from today bilateral relations will be conducted directly through non-resident charge d'affaires and officials," a Foreign Office spokesman told AFP.
Britain had ordered the closure of Iran's embassy in London after shuttering its own in Tehran when hundreds of Islamist students stormed the compound.
The students -- protesting against Western sanctions over Tehran's disputed nuclear programme -- ransacked the building as well as the ambassador's residence in north Tehran.
Since then, the Swedish embassy in Tehran has represented Britain's interests there, while the Omani embassy in London has done the same for Iran.
The Foreign Office spokesman said: "We will no longer have formal protecting power arrangements in place. This is the next stage of the step-by-step process of taking forward our bilateral relationship with Iran."
As regards reopening Britain's embassy in Tehran, he said no decision had been taken.
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"We have made it clear that the issue of compensation (for the damage caused) needs to be addressed," the spokesman said.
A pristine Iranian flag was flying Thursday outside its embassy in the plush Prince's Gate terrace overlooking London's Hyde Park, for the first time in more than two years.
The London embassy was officially open again for the first time since 2011 but is not yet operational as no diplomats have been allocated yet.
The six-storey terrace was the scene of the 1980 Iranian embassy siege, when six gunmen stormed the building, taking hostages. It ended five days later with a British special forces raid.
Around 400,000 Iranians live in Britain.
Iranian Deputy Foreign Minister Majid Takht-Ravanchi told ISNA news agency that relations had been resumed at the non-resident charges d'affaires level and the British flag was flying at the embassy in Tehran.
In November, the two countries had already named those non-residents, and Britain's new envoy, Ajay Sharma, visited Iran in December.
There has been a thaw in ties between the Islamic republic and the international community since the June election of President Hassan Rouhani, a reputed moderate who has reached out to the West and steered his country into a landmark nuclear deal with major powers.