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A businessman accused of working for MI6 in Iran may face the death penalty if found guilty of being an undercover agent.

The man, who has not been named, is alleged to have passed sensitive information to British intelligence officers.

He made contact with British agents 11 times in recent months both inside and outside the country, it has been claimed.

The suspect, said to a businessman in his 50s, was arrested in the town of Kerman in south-east Iran after authorities spent months tracking him down.

The nationality of the man arrested had not been made clear, but sources last night said he was possibly Iranian or from northern Iraq.

The head of the Kerman region’s revolutionary court, Dadkhoda Salari, said the suspect has already admitted his guilt and is currently on trial.

It has not been suggested that the alleged spy is a Briton, and Tehran has a history of announcing the arrest of people it claims are spying without releasing further details.

Spying in Iran is punishable by death.

A US man of Iranian descent was in January has been sentenced to death by a court in Tehran for spying for the CIA.

Amir Mirzai Hekmati was “sentenced to death for co-operating with a hostile nation, membership of the CIA and trying to implicate Iran in terrorism”.

Professor Ali Ansari, the director of the Institute for Iranian Studies at the University of St Andrews, said: “We have to wait for more concrete details on this case but if the accused is found guilty then it is very possible they could face the death penalty or be imprisoned for life.”

A security source said: “The claim that the man has confessed means the judicial process is well under way.

“Charges of espionage attract automatic death sentences and there have been several cases in the few years in which Iranians, some of them dual nationals, have been sentenced to death after being accused of spying for the West.

“In the past Tehran has broadcast confessions on national TV to try to prove beyond doubt to the public that the death sentence is justified.”

Last night the Foreign Office refused to comment on the claims and the Iranian embassy in London did not respond to media enquiries.

A spokeswoman for the UK Foreign Office said: “We don’t comment on intelligence matters.”

The incident, which is likely to cause huge diplomatic tension, comes at a time when London and Tehran have been taking steps towards restoring relations that were broken off after activists stormed the British embassy in Tehran in November 2011.

London announced the appointment of Ajay Sharma as non-resident charge d’affaires in Iran in November, and Sharma made his first visit to Iran in that role this month.

In November, six world powers made a breakthrough deal for Tehran to curb its nuclear programme in return for limited sanctions easing.

The agreement appeared to face its first major difficulty on Friday with Russia warning that expanding a U.S. sanctions blacklist could seriously complicate the deal’s implementation.

A Whitehall source said: "The Iranians make these allegations from time to time so they can implicate their own citizens who are then executed as traitors."