The UK says it plans to re-open its embassy in the Iranian capital, Tehran.
Ties have thawed recently following attacks on the British embassy in Iran in 2011 which led to the suspension of full diplomatic relations.
And Britain's moves to improve its relationship with Iran come as the West engages with Tehran on the crisis unfolding in Iraq as ISIS / ISIL militants advance.
As Olly Barratt reports from London.
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Iran is not quite flavour of the month yet according to UK Foreign Secretary William Hague.
But he says creating an environment where talks with Iran on Iraq and other matters can take place - is important.
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The re-opening of Britain's embassy in Tehran is the latest step in improving relations since the election of President Hassan Rouhani.
The two countries had already appointed charge d'affaires to each other last year amid nuclear talks between Iran and the west.
But at Westminster, Labour shadow foreign secretary douglas alexander pushing his counterpart to ensure the current iraq crisis can be eased by iran and improved diplomatic ties.
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And some MPs hope Iran's influence can help further around the region.
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And when it comes to Iraq,
Financial Times Foreign Editor Roula Khalaf says the west can't ignore Iran.
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Tens of thousands of iranians live in britain and for them the improvement of diplomatic ties means they'll be able to take advantage again of visa and consulate services currently not available.
William Hague says the UK's embassy in Tehran will re-open as soon as 'practical arrangements' can be taken care of.
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