The British embassy in Tehran has been stormed by dozens Iranian students chanting "death to England" and calling for the building to be taken over.
The group tore down the Union Flag and threw documents from the windows.
Tuesday's break-in comes two days after the Iranian parliament voted to downgrade relations with the United Kingdom, which could see the British Ambassador expelled from he capital.
The Prime Minister David Cameron has branded the Iranian government a "disgrace", saying: "The attack on the British Embassy in Tehran today was outrageous and indefensible. The failure of the Iranian government to defend British staff and property was a disgrace.
"The Iranian government must immediately ensure the continued safety of our staff, return all property and secure the compound immediately."
The Foreign Secretary, William Hague, delivered a statement this evening, saying: "The United Kingdom takes this irresponsible action extremely seriously.
"It amounts to a grave breach of the Vienna Convention which requires the protection of diplomats and diplomatic premises under all circumstances.
"We hold the Iranian Government responsible for its failure to take adequate measures to protect our Embassy, as it is required to do."
The British Foreign Office condemned the incursion.
“We are outraged by this. It is utterly unacceptable and we condemn it," a spokesperson said.
British nationals living in Iran have been urged to stay indoors and the FCO has revised its travel guidance on the country.
“Under international law, including the Vienna Convention, the Iranian Government have a clear duty to protect diplomats and Embassies in their country and we expect them to act urgently to bring the situation under control and ensure the safety of our staff and security of our property”.
Sunday's parliamentary vote was a response to George Osborne's decision to impose sanctions on Iranian banks over fears about the Islamic Republic's nuclear programme.
According to the BBC, Iranian radio reported that some members of the Iranian parliament chanted "death to Britain" after the vote passed by an overwhelming majority.
Speaking to the AFP, House Speaker Ali Larijani warned: "The legislative branch is observing the behaviour of the British government and this is just the beginning of the road."
"This plan should be firmer and stronger against Britain," MP Mahmoud Ahmadi Bighash said before the vote. "Having relations with Britain, even with one representative, is a total betrayal and we should padlock the British embassy."
Another MP threatened: "The British government should know that if they insist on their evil stances the Iranian people will punch them in the mouth, exactly as happened against America's den of spies, before it was approved by officials."
"Den of spies" is a reference to the US Embassy, which was stormed in 1979.
Should the bill pass the Guardian Council, Dominick Chilcott, the UK ambassador to Iran, will have two weeks to leave the country.
The Foreign Office reacted by calling the vote "regrettable".
Shadow foreign secretary Douglas Alexander said the break-in at the embassy was "appalling".
“News of the utterly deplorable assault today on the British Embassy in Tehran is deeply concerning. At this time the immediate priority must be the safety of British diplomatic staff in Tehran," he said.
"The backdrop to these violent events are the recent worrying scenes witnessed in the Iranian parliament. Our efforts to prevent Iran acquiring nuclear weapons must continue notwithstanding these appalling scenes.”