Iran's Islamic Revolutionary Guard Corps should be classified as a terrorist organisation by the UK for the violence it perpetrates across the Gulf region, a report said.
Tehran's flouting of its nuclear deal with the West should also lead to the agreement being renegotiated with tougher penalties for breaches, the British parliament's foreign affairs committee said.
The call for action came as legal action was considered by the US, UK and others to try to pierce the veil around the funding of Hezbollah, an Iran-backed terrorist group.
The parliamentary committee condemned Iran's human rights record and the tactic of state-sponsored hostage taking, using victims as pawns in international negotiations.
The violent actions of the IRGC meet the "criteria for proscription in the Terrorism Act 2000, due to its clear and enduring support for terrorists and non-state actors working to undermine stability in the region", MPs said.
They called on the British government to push legislation through parliament next month to proscribe the IRGC, as the US did last year.
“The IRGC’s philosophy and malign actions within Iran and across the region run counter to the interests of the UK and those of the Iranian people,” the report said.
Committee chairman Tom Tugendhat said this was a logical step in a response to the IRGC's “bankrolling and bolstering of terrorism”.
“The group’s destructive philosophy and violence within Iran and across the region make a compelling case for it to be singled out for sanction,” Mr Tugendhat said.
The failure to prohibit Iran from developing ballistic missiles capable of delivering nuclear warheads was a significant omission in the Joint Comprehensive Plan of Action signed in 2015.
“It is entirely reasonable that the JCPOA should place a binding restriction on Iran from developing such missiles,” said the report, which was compiled by MPs from all parties.
Tougher penalties should also be introduced to encourage behaviour change and force Iran to allow International Atomic Energy Agency inspectors into civilian and military sites, given the “lack of good faith it has shown”.
While the nuclear deal was described as imperfect, it should not be jettisoned until a new agreement is negotiated, and the MPs recommended that Britain takes the lead in inviting the US back into the deal when Joe Biden is US president.
British Foreign Secretary Dominic Raab should then seek a broader agreement that ensures Iran does not have missiles with nuclear capability, and allows IAEA inspection of undeclared nuclear sites and for an immediate snapback of sanctions if Iran fails to comply.
The Gulf region’s security issues should also be addressed, to build regional and international consensus on how to meet the challenges posed by Iran’s destabilising activity, the report said.
“Despite good intentions, the JCPOA was an agreement built on weak foundations,” Mr Tugendhat said.
“The slow death of the nuclear deal seems to have been inevitable and ... it now appears beyond repair.”
The British government also had to acknowledge the Iranian state's practice of “arbitrarily detaining nationals that amounted to state hostage-taking”.
Britain should take the lead in “calling it out for what it is” and shape a united international response to end the tactic.
“The charges, trials and convictions of British citizens on Iranian soil are a parody of a justice system,” Mr Tugendhat said.
“Using young mothers and retirees as bargaining chips and leverage is an unacceptable form of diplomacy.”
He also criticised the UK Foreign Office for a lacklustre response to the hostage-taking.
The report highlighted Iran’s disregard for human rights and criticised the treatment of staff and families who work for BBC Persia in Iran.
“The Iranian people are the victims of the poor choices made by the Iranian state, yet they are too often a secondary consideration,” the report said