A powerful Iranian council says Tehran seized the UK-registered oil tanker as direct retaliation for Britain impounding one of its own vessels earlier this month.
The semi-official Fars news agency quoted Guardian Council spokesman Abbas Ali Kadkhodaei as saying that "the rule of reciprocal action is well-known in international law".
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The Council rarely comments on such matters, but when it does it is seen as a reflection of supreme leader Ayatollah Ali Khamenei's views - who has final say on all state matters.
Footage has also emerged of the UK-registered Stena Impero at anchor, believed to be in the military port of Bandar Abbas.
Iran has released footage showing members of its forces seizing a British-flagged tanker at sea in the Strait of Hormuz.
Footage shows a helicopter hovering over the vessel as people drop down onto the ship from a rope.
Jeremy Hunt has said the seizing of a UK-flagged tanker by Iran "raises very serious questions" about the security of British and international shipping in the Strait of Hormuz.
The Foreign Secretary, speaking after a meeting of the Government's emergency committee Cobra, said the vessel was seized in Omani waters in "clear contravention of international law".
He told reporters inside the Foreign and Commonwealth Office on Saturday that, having spoken to his Iranian counterpart Mohammad Javad Zarif, Tehran saw the situation as a "tit for tat" following the detention of Grace 1 in Gibraltar.
"Nothing could be further from the truth," he said.
"Grace 1 was detained legally in Gibraltarian waters because it was carrying oil, against EU sanctions, to Syria, and that's why the Gibraltarian authorities acted totally with respect to due process and totally within the law.
"Stena Impero was seized in Omani waters in clear contravention of international law, it was then forced to sail into Iran.
"This is totally and utterly unacceptable. It raises very serious questions about the security of British shipping, and indeed international shipping, in the Strait of Hormuz."
Mr Hunt said MPs would be updated about what "further measures" the Government will take, on Monday, adding that the threat level had been raised to three.
"Our priority continues to be to find a way to de-escalate the situation.
"That's why I reached out to the Iranian foreign minister, that's why due process in Gibraltar continues.
"We need to see due process happening in Iran as well, we need to see the illegal seizing of a British flagged vessel reversed, we need that ship released, and we continue to be very concerned about the safety and welfare of the 23 crew members."
Labour leader Jeremy Corbyn joined calls for Iran to release the British tanker, criticising President Trump
He wrote: "Escalation risks a deeper conflict, all sides must show restraint.
"Trump tearing up the Iran nuclear deal has fuelled confrontation. Its negotiated reinstatement is essential to defuse threat of war in the Gulf."
Allahmorad Afifi, Director General of Ports and Maritime Affairs of Hormuzgan Province, repeated claims it had been in collision with a fishing vessel and did not respond to calls from the smaller vessel, so the Iran military was called in.
He said: "We requested help from military forces and judiciary authorities in the region and the tanker was directed to the Bandar Abbas port and it is currently in custody at the order of judicial authorities."
He confirmed the 23 crew members, including Indian, Russian, Filipino and Lithuanians but no Britons, were still aboard the vessel.
A spokesperson for Stena Bulk said on Saturday afternoon that their insurers are in contact with the Head of Marine Affairs at the Port of Bandar Abbas, who has reported that the "crew members of the vessel are in good health" and that the tanker is at the nearby Bandar Bahonar anchorage.
A statement from the shipping company said: “The Head of Marine Affairs has asked a formal request be made for a visit to be arranged to the crew members and vessel. I can confirm this formal request is being prepared forthwith.
“Our insurers have also advised that the Head of Marine Affairs has confirmed to them that no instructions have been received so far as to what will happen to the ship.”
The development came as the UK Government again stressed the "unacceptable" seizure of the British-flagged tanker was "deeply concerning".
Stena Bulk, which owns the Stena Impero, said the ship was in “full compliance with all navigation and international regulations”.
A second oil tanker, the Liberian-flagged Mesdar, which is managed by Norbulk Shipping UK, veered off course towards the Iranian coast after it was boarded by armed guards at around 5.30pm on Friday.
British shipping is now being warned to avoid the area, if possible.
Foreign Secretary Jeremy Hunt tweeted on Saturday morning to say Iran appeared to be taking a "dangerous path of illegal and destabilising" behaviour.
He again hinted at a potential escalation, insisted the UK would ensure the safety of UK shipping.
The Mesdar’s Glasgow-based operator said communication had since been re-established with the ship and the crew were unharmed.
The Government’s emergency committee Cobra met on Friday night to discuss the situation.
“We remain deeply concerned about Iran’s unacceptable actions which represent a clear challenge to international freedom of navigation,” a Government spokesman said.
UK vessels have been advised to “stay out of the area” of the Strait of Hormuz for an “interim period”, the spokesman said, adding: “As the Foreign Secretary has said, our response will be considered and robust and there will be serious consequences if the situation is not resolved.”
Iran's state-run IRNA news agency is reporting that the seizure was due to a collision with an Iranian fishing boat.
The report says the British tanker caused damage to the fishing boat, then did not respond to calls from the smaller craft.
On Friday night, Mr Hunt, who attended the Cobra meeting, warned there would be “serious consequences” if the situation was not resolved quickly.
Mr Hunt said he understood that there were no British citizens on board either ship.
“We will respond in a way that is considered but robust and we are absolutely clear that if this situation is not resolved quickly there will be serious consequences,” he said.
Asked if he could rule out military intervention, Mr Hunt said: “We’re not looking at military options, we’re looking at a diplomatic way to resolve the situation, but we are very clear that it must be resolved.
“Freedom of navigation in the Gulf is absolutely essential. If that freedom of navigation is restricted, Iran is the biggest loser and so it is in their interest to resolve this situation as quickly as possible and we will do everything we can to do that.”
He said the Stena Impero was surrounded by four vessels and a helicopter, and was heading into Iranian waters.
The second ship, the Mesdar, was surrounded by 10 speedboats, he said.
He said he had spoken to US secretary of state Mike Pompeo about the situation and had tried to speak to Iranian foreign minister Mohammad Javad Zarif, but he was on a plane.
A statement from Stena Bulk said ship manager Northern Marine Management had lost contact with the crew of 23 after “unidentified small crafts and a helicopter” approached the vessel at about 4pm on Friday.
The company said the tanker was in international waters at the time but appeared to be heading north towards Iran.
Erik Hanell, president and chief executive of Stena Bulk, said: “There are 23 seafarers onboard of Indian, Russian, Latvian and Filipino nationality.
“There have been no reported injuries and the safety and welfare of our crew remains our primary focus. We are in close contact with both the UK and Swedish government authorities to resolve this situation and we are liaising closely with our seafarers’ families.”
US president Donald Trump said America would be “working with the UK”.
He told reporters: “We will talk to the UK and we have no written agreement but we have an agreement. They’ve been a very great ally of ours.
“So we heard about it, we heard it was one, we heard it was two, and we will be working with the UK.”
The incident follows on from recent heightened tensions in the Gulf involving Iran, the US and UK.
Last week, the Royal Navy warship frigate HMS Montrose drove off three Iranian vessels which tried to stop the commercial ship British Heritage as it sailed through the Strait of Hormuz.
Fears were raised that the Iranian authorities were trying to seize a UK ship in retaliation for the detention of the Grace 1 tanker.
The Iranian ship was detained off the coast of Gibraltar on July 4 after it was suspected of violating EU sanctions by carrying a cargo of crude oil destined for Syria.
The ship’s captain, chief officer and two second officers were arrested and bailed and an investigation is ongoing.
Iran’s supreme leader Ayatollah Ali Khamenei called the tanker’s seizure an act of “piracy” on Tuesday and warned the UK to expect a response.
Mr Hunt offered to help release Grace 1 if Iran guaranteed it would not breach sanctions imposed on Bashar Assad’s regime.
European allies to the US have been urged to take a tougher stance on Iran after Mr Trump withdrew from a nuclear deal with Tehran.
On Thursday, Mr Trump said a US warship shot down an Iranian drone in the Strait of Hormuz – something denied by Iranian military officials.
Last month, Mr Trump said he had made a last-minute decision to call off air strikes in retaliation for the shooting down by Iran of an unmanned US drone.