The United Arab Emirates recalled its envoy to Tehran on Thursday, state news agency WAM reported, after having protested over a visit by Iranian President Mahmoud Ahmadinejad to a disputed island.
"The foreign ministry has recalled its ambassador to the Islamic Republic of Iran, Saif Mohammed Abid al-Zaabi, for consultations," it said.
Emirati Foreign Minister Sheikh Abdullah bin Zayed Al-Nahayan on Wednesday slammed Ahmadinejad's visit to the island of Abu Musa as a "flagrant violation of UAE sovereignty over its territories."
Iran said Ahmadinejad's trip was a purely ""domestic issue," media reported.
"The president's trip to Abu Musa island is a domestic issue that took place in the framework of the president's provincial tours," deputy foreign minister in charge of Arab and African affairs Hossein Amir Abdolahian was quoted as saying.
"The Islamic Republic has a serious will to boost and consolidate ties between the two countries and emphasises bilateral talks in order to solve any possible misunderstandings," he added.
Both Iran and the Emirates claim territorial sovereignty over Abu Musa and two other islands in the southern Gulf.
This is a "setback to all efforts and attempts the UAE is making to find a peaceful settlement to Iran's occupation of the three UAE islands," the foreign minister said, quoted by WAM.
"This visit will not change the legal status of these islands which are part... of the UAE national soil," the English-language statement said.
During his visit to the disputed island earlier on Wednesday, Ahmadinejad insisted historical documents proved "the Persian Gulf is Persian," according to Iran's official IRNA news agency.
The Iranian leader said the name "Persian Gulf" derived from the "culture, civilisation and the dominant opinion" of the area.
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"Since a few thousand years ago, the main culture in most of the world was the Iranian culture and civilisation, and it is clear that the naming (of the waterway) would be based on the name of this culture and land."
Sheikh Abdullah, who visited Iran in February, said Ahmadinejad's move and "provocative rhetoric... expose Iran's false allegations regarding its keenness to establish good relations... with the UAE and countries of the region."
Gulf Cooperation Council chief Abdullatif al-Zayani on Wednesday condemned Ahmadinejad's visit.
"This visit is a clear violation of UAE sovereignty and it does not change the UAE's historical and legal ownership over the three occupied islands," Zayani said in a statement.
"This is an irresponsible provocation and is not in line with the GCC policy of maintaining good neighbourly relations with Iran," he added.
The six nation GCC bloc includes Saudi Arabia, the United Arab Emirates, Bahrain, Oman, Qatar and Kuwait.
The UAE football association also cancelled an upcoming match between the two nations over the dispute.
"The game (planned for Tuesday in the UAE) has been cancelled in solidarity with the official Emirates position...on the visit by the Iranian president to Abu Musa," said Yousef Serkal, a top official from the Emirates Football Association in a statement Thursday.
Iran, under the rule of the Western-backed shah, gained control of the islands of Abu Musa, Lesser Tunb and Greater Tunb in 1971, as Britain granted independence to its Gulf protectorates and withdrew its forces.
Abu Musa, the only inhabited island of the three, was placed under joint administration in a deal with Sharjah, now part of the UAE.
But the UAE government says the Iranians have since taken control of the entire island which controls access to the oil-rich Gulf and installed an airport and military base there.