Egypt is threatening to sue an Iranian news agency for allegedly running a fake interview with new Egyptian president Mohamed Mursi.

In the interview with the Fars news agency, which was widely quoted in the Middle East, Mr Mursi allegedly said he would improve ties with Iran and review Egypt's long-standing peace treaty with Israel.

An Egyptian presidential spokesman says the interview was fabricated.

"President Mursi was never interviewed by Iran's Fars news agency," Yasser Ali said.

"The interview was fabricated and his presidential office has begun taking legal action against the news agency."

Iran has officially hailed Mr Mursi's victory in Egypt's first free presidential election as a "splendid vision of democracy" that marked the country's "Islamic Awakening".

Mr Mursi, however, is striving to reassure Egypt's Western allies who are wary at the prospect of Islamist rule, and Gulf states that are deeply suspicious of Iranian influence.

In his first speech as president-elect, he pledged he would respect the current relationship with Israel, including the peace treaty that has been in place for decades.

Meanwhile, Mr Mursi has begun selecting his new government.

He has lost some presidential powers to the ruling military council, which earlier this month moved to shore up its own powers and curtailed those of the president.

An Egyptian court has now intervened to suspend one decision to give military police the power to arrest civilians.

ABC/wires