Iran has rejected the UK’s claim that Nazanin Zaghari-Ratcliffe is entitled to British diplomatic protection, insisting she is solely an Iranian citizen and therefore ineligible for such status.

In an escalation of the standoff with Tehran, the Foreign Office announced on Thursday that Zaghari-Ratcliffe qualified for diplomatic protection, a step that raises her case from a consular matter to the level of a dispute between the two states. The British-Iranian dual national was arrested three years ago for spying, a charge she denies, and is serving a five-year sentence.

Dismissing the British announcement, Iran’s ambassador to the UK, Hamid Baeidinejad, said governments could offer diplomatic protection only to their own nationals and the UK was “acutely aware” that Iran did not recognise dual nationality. “Irrespective of UK residency, Ms Zaghari thus remains Iranian,” Baeidinejad said.

Iran has never recognised dual citizenship status and was long prepared for the prospect of the diplomatic move by the UK. Britain will now have to decide whether to test the protection claim in either the international courts or at the UN.

In a sign that Zaghari-Ratcliffe is unlikely to gain any short-term support from the Iranian judiciary, it was also announced that a political opponent of the reforming president, Hassan Rouhani, had been appointed to head the judiciary. Ebrahim Raisi is seen as a serious judicial figure with greater popularity than Rouhani.

The foreign secretary, Jeremy Hunt, admitted that the move to raise Zaghari-Ratcliffe’s status was unlikely to lead to her immediate release.

“It’s not a magic wand, it’s not going to solve things overnight, but it does create a different legal and political context,” he said. “It sends a very strong message to Iran: you are a great civilisation, you may have disagreements with the UK, but at the heart of this is an innocent woman, vulnerable, unwell and scared, and she has a four-year-old daughter. She should not be paying the price for whatever disagreements you have with the UK.”

Play Video 2:04 Nazanin Zaghari-Ratcliffe goes on hunger strike over being denied medical care in prison - video

Hunt said he had expected a negative reaction from Iran but insisted he wanted to resolve the case “in an amicable way”. He said affording her diplomatic protection may make it easier to gain consular access to her, which has so far been denied to the UK’s ambassador in Tehran.

“In terms of the overall context it creates, this hasn’t happened for an individual, we think, for more than 100 years, so it’s difficult to know exactly what the impact will be,” Hunt said.

The foreign secretary acted after Zaghari-Ratcliffe complained that promises of extra access to medical help had failed to materialise.

Her husband, Richard Ratcliffe, said he hoped the UK move would lead to her release within months. “Before, Nazanin’s case was an injustice that she was suffering and we were complaining about [which] the government would have been sympathetic about. Now the government is saying listen, we recognise this formally and we say this is a dispute we are taking forwards with Iran,” he said.

“In terms of practically what it means, the UK has got more rights in terms of calling for protection of its citizens [and] it can demand to visit her more easily.”