Calls for the UK to list Iran's Revolutionary Guard Corps as terrorists are running into concerns from officials about the effect on British citizens should Tehran retaliate.
The Foreign Office is reluctant to act in case Tehran closes the British embassy and makes it harder to get hostages in Iran released.
Alicia Kearns, a senior Conservative MP lobbying for a ban on the IRGC, said she rejected this argument because the government could still negotiate from London.
She said on Wednesday that British diplomats might have to be pulled out in any case because of safety fears.
Tehran on Wednesday expelled two German diplomats in a tit-for-tat move after two Iranians were ordered out of Berlin, over a death sentence handed to a German citizen.
Pressure to proscribe the IRGC has risen since it was accused of repressing protesters during the recent wave of unrest in Iran.
It is also accused of menacing people in Britain, carrying out ransomware attacks and running front organisations in London and Manchester.
However, while Home Office ministers Suella Braverman and Tom Tugendhat are believed to favour a terrorist listing, no decision has yet been made by the UK government.
Asked by The National what was delaying a terror listing, Ms Kearns said the Foreign Secretary would have to phone families of stranded citizens to explain the complications in the event of a ban.
People believed to be detained in Iran include Morad Tahbaz, who holds US, UK and Iranian citizenship, and British-Iranian campaigner Mehran Raoof.
"Closing our embassy means that all those people currently being held hostage by the Iranian government — potentially, we lessen our ability to advocate for them," Ms Kearns said.
"I think that's highly unlikely because I know a lot of the work we do to protect those hostages and to try to get them home is actually done from King Charles Street in the centre of London.
"But you would have to make those phone calls. You would have to have that discussion. That is very difficult to do."
She said evidence seen by the foreign affairs committee she chairs in the House of Commons showed Britain could still help stranded citizens.
The committee is expected to publish findings in the coming weeks on the UK's efforts to release hostages in Iran, notably including the case of Nazanin Zaghari-Ratcliffe.
"I'm confident, having done our hostage inquiry, that the ability to fight for those being held hostage would not be diminished," Ms Kearns said. "But you can understand why the Foreign Office still wants to be on the ground."
She said banning the Guards would be "an important political sign that we would send, that we will not accept any more the activities of the IRGC on our soil and beyond".
Senior IRGC figures have been hit with western sanctions over their role in the crackdown on protests.
The EU is likewise pondering a ban but has run into legal disputes over whether it can list the IRGC as terrorists.
There has also been a debate about whether any ban would shut the door on a revived nuclear deal between world powers and Iran.
The International Atomic Energy Agency on Tuesday said it had confirmed reports that Iran had enriched uranium to a level of 84 per cent.
Western powers say Iran has no plausible civilian use for such uranium. A level of 90 per cent is considered weapons-grade.
