Britain's foreign secretary reopened his country's embassy in Tehran on Sunday in a long-awaited step signalling better relations four years after a mob stormed the compound, forcing its closure.

Philip Hammond's trip comes five weeks after Britain and five other world powers struck a deal with Iran to end a 13-year dispute over the Islamic republic's disputed nuclear programme.

He entered the embassy at noon (0730 GMT) and held a ceremony shortly afterwards in its garden with Ajay Sharma, the new charge d'affaires who will be Britain's top diplomat in Tehran.

Iran's embassy in London will also reopen on Sunday. The two countries are expected to appoint ambassadors in the coming months.

Hammond was to later hold a press conference with Mohammad Javad Zarif, Iran's foreign minister and lead negotiator in the nearly two years of talks that have ended Tehran's isolation from the West.

"Arrived in #Tehran. First British Ministerial visit since 2003. Historic moment in UK-Iran relations," Hammond tweeted.

European officials have been quick to visit Tehran since July 14, when the nuclear agreement with Britain, China, France, Germany, Russia and the United States was announced in Vienna.

The deal will see the lifting of economic sanctions imposed on Iran, in exchange for curbs on its atomic activities.

The deal has sparked a flurry of interest from countries seeking to re-connect with the oil-rich Islamic republic, whose 78 million population is also seen as a largely untapped market for other industries.

The thaw between Britain and Iran began with the June 2013 presidential election victory of Hassan Rouhani, a moderate who reached out to the West.

"President Rouhani's election and last month's nuclear agreement were important milestones. I believe that we have the potential to go much further," Hammond said before his arrival.

Following the 2011 embassy attack, Britain said it could not have happened without the tacit consent of the Iranian regime at the time.

It erupted after Iran's parliament voted to expel the British ambassador and reduce trade relations in retaliation for sanctions against Iran's banking sector.

Students rampaged for hours through the diplomatic compound in downtown Tehran, tearing down the British flag, ripping up pictures of Queen Elizabeth II and trashing offices. Staff were seized by protesters.

Diplomatic relations were reduced to their lowest possible level, with Britain expelling Iran's officials.

- UK trade delegation in Tehran -

"Reopening our embassies is a key step to improved bilateral relations," Hammond said.

"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."

He said London and Tehran should also be ready to discuss challenges including extremism, regional stability, and the spread of the Islamic State jihadist group in Syria and Iraq.

"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," Hammond added.

Plans to reopen the embassy were announced in June last year.

Sharma was appointed in a non-resident position in November 2013 and has since visited Iran 12 times.

Hammond and treasury minister Damian Hinds are visiting Tehran with a small trade delegation for the two-day visit.

It includes the Institute of Directors, the British Bankers' Association, Shell Upstream International and the Confederation of British Industry, to discuss future trade opportunities.

Hammond follows his Italian, French and German counterparts who travelled to Iran with business delegations after the nuclear deal.

Europe is keen on renewing trade ties with Iran and most countries have diplomatic representation in Tehran.

But the United States, which led the nuclear talks, has not had diplomatic relations with Iran since 1979 following the 444-day hostage crisis that followed the storming of its Tehran embassy.