Britain's Foreign Secretary James Cleverly on Monday said the UK would consider further steps against Iran after the execution of a British-Iranian dual citizen.
But he stopped short of announcing that Iran's Islamic Revolutionary Guard Corps would be designated a terrorist group amid pressure from MPs for such a move.
It came as a former head of the diplomatic service said the terror listing was "clearly under way" and that an announcement could come soon.
Mr Cleverly said he had held talks with Britain's ambassador in Tehran after the execution of Ali Reza Akbari in Iran. Britain announced sanctions against Iran's prosecutor general at the weekend.
Mr Cleverly told the House of Commons: "We should consider what further steps, alongside our allies, we take to counter the escalating threat from Iran.
"We do not limit ourselves to the steps that I have already announced."
Mr Cleverly is expected to discuss next steps with allies in the coming days. MPs last week voted in favour of adding the IRGC to a list of banned organisations.
Lord Simon McDonald told BBC Radio 4 on Monday: "It sounds as though that is imminent.”
British terrorism law is focused on non-state individuals and organisations but that does not mean it cannot encompass those with state affiliations, he said.
“But it has never been done before and so there will be ramifications for including an organ of a foreign state as a terrorist organisation," he said.
“And, I assume that is what the lawyers are working through. It takes a bit of time but it doesn’t prevent it from happening.”
Mr Akbari, a British-Iranian national and former Tehran defence official, was hanged after being convicted of spying for MI6, Iranian state media reported on Saturday.
Mr Cleverly said the execution was the latest example of "pitiless repression by a ruthless regime".
"Instead of listening to the calls for change within Iran, the regime has resorted to its usual tactics of blaming outsiders and lashing out against its supposed enemies, including by detaining a growing number of foreign nationals for political gain," he said.
“We are witnessing the vengeful actions of a weakened and isolated regime obsessed with suppressing its own people.”
Labour said the execution was a “barbaric” moment. It said the IRGC posed a “growing threat” on UK soil, while repressing protest in Iran.
Labour also spoke of the unjust imprisonment of British citizens in Iran, long-standing concerns about Iran’s threats to Israel and its support for violent groups across the region as reasons to formally declare the IRGC a terrorist organisation.
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The move could have widespread domestic political support after MPs last week voted in favour of adding the IRGC to a list of banned terrorist organisations.
The back bench motion, tabled by Conservative MP Bob Blackman, is non-binding on the government and ministers are still considering the matter.
Labour said ministers could go through the existing proscription process.
Alternatively, the party proposed making an amendment to the National Security Bill that would create a parallel power to proscribe state bodies on the basis of their activity.
“The Iranian regime’s actions against courageous protesters seeking a better future, as well as British nationals imprisoned in Iran and its threats to UK security, mean robust action is needed now,” MPs David Lammy and Yvette Cooper said in a joint statement.
“Labour supports proscribing the IRGC either through the existing process, or through amending the National Security Bill.”
Conservative MP and chairman of the Commons Defence Committee, Tobias Ellwood, told Times Radio on Monday that Iran will become more of a strategic threat to the UK.
“We’ve had Iran going through a very difficult period following the demonstrations that took place in that country, [with] many women coming out after Mahsa [Amini] was killed under police custody when she refused to wear the headscarf during the summer,” he said.
“The population itself is rising up against its own regime, the regime is lashing back out and that’s why you’re seeing a number of executions taking place, not just the one involved with a dual national.
“So it’s important to recognise where Iran is going to go, but very similar to Russia in a way, that we’ve not done enough to stand up to Iran, its proxy influence in Lebanon, in Syria, in Yemen, in Iraq and so forth.
“We’ve not challenged this whatsoever again, throughout 30 years, three decades of becoming, I’m afraid, too risk averse to stand up — to checking — the challenges to our international rules-based order.”
House of Commons foreign affairs committee chairwoman Alicia Kearns has called on ministers to shut down a London base that is said to be used by the organisation.
The Tory MP said she wanted to see the “Islamic Revolutionary Guard Corps office in Maida Vale closed”.
“They like to call it an outreach office, an Islamic centre,” Ms Kearns told BBC Radio 4 on Saturday.
“The head of it was appointed directly by the supreme leader of Iran.
“This is an organisation that is solely there to spread the word of the Islamic repressive regime.”
She said proscribing the guard would be a “big shift in policy” for Britain as it would “be the first time that we would have recognised that states can undertake terrorism”.