The Government's emergency committee COBRA met on Friday night after a British-operated oil tanker, the Stena Impero, was seized by the Iranian Revolutionary Guard in the Persian Gulf.
Iran's Guardian Council said that the act was in response to Britain's role in seizing an Iranian tanker earlier this month.
This is one of several incidents that have occurred due to heightened tensions in the Gulf involving Iran, the US and UK.
Earlier this month an Iranian oil tanker, Grace 1, was seized by Royal Marines in Gibraltar on suspicion of breaching EU sanctions against Syria.
The captain, chief officer and two second officers were first arrested and then conditionally bailed without charge.
This led to Iran accusing the UK of playing a "dangerous game", and being "servants of America" while demanding the immediate release of the tanker.
What has happened so far?
13 June: Two US oil tankers near the Strait of Hormuz were attacked in an assault that left one ablaze and adrift, with 44 sailors evacuated from both vessels. The US Navy rushed to assist, with American President Donald Trump blaming Iran for the incidents.
Iran denied involvement in the tanker attacks and accused America of promoting an "Iranophobic" campaign.
20 June: An American military drone worth $100 million (£78 million) was downed by Tehran, with Iran's president Hassan Rouhani claiming it had violated their airspace.
The move marked a new high in the rising tensions between the two countries, as Iran's naval commander warned his forces would not hesitate to down more US drones if they entered its airspace.
Mr Trump then pulled back from the brink of retaliatory military strikes on Iran after he was told 150 people could die. He has since signed an executive order targeting Iran's supreme leader Ali Khamenei and his associates with financial sanctions.
4 July: Royal Marines from 42 Commando were involved in an operation to seize a supertanker off Gibraltar suspected of carrying oil destined for Bashar al-Assad's Syrian regime. They boarded the ship by descending on ropes from a Wildcat helicopter and by using rigid inflatable boats.
They worked alongside authorities in Gibraltar to detain the Iranian tanker Grace 1, which was believed to be heading to the Banyas refinery in breach of European Union sanctions. In response, Iran's revolutionary guard warned a British oil tanker could be seized in retaliation.
10 July: Royal Navy frigate HMS Montrose drove off three Iranian vessels which tried to stop the commercial ship British Heritage.
It is understood the tanker was making passage out of the Gulf through the Strait of Hormuz when the ship was approached by the Iranian vessels. HMS Montrose was nearby and proceeded to come in between.
Warnings were given but no shots were fired. The Iranian vessels then turned around and left.
11 July: Police in Gibraltar arrested the captain and chief officer of the supertanker Grace 1.
In a statement, the Royal Gibraltar Police said the arrests followed a "protracted" search of the vessel, during which documents and electronic devices were seized.
12 July: Iran said Britain is playing "a dangerous game" as the country demanded the immediate release of the oil tanker.
Police in Gibraltar arrested two more officers on the supertanker. The two second mates, both Indian nationals, were interviewed under caution.
The UK government announced it would send a second warship to the Gulf amid escalating tensions with Iran. HMS Duncan, a Type 45 destroyer, is joining HMS Montrose, which is due to go in for "pre-planned maintenance" while continuing its deployment.
13 July: Gibraltar announced the release of the Grace 1 crew, but detain the tanker.
UK Foreign Secretary Jeremy Hunt said Britain will release the Grace 1 tanker, as long as the cargo does not break EU sanctions and end up in Syria.
15 July: Mr Hunt attended a Brussels meeting of EU foreign ministers on the issue of the Iran nuclear deal.
Mr Hunt said there was a "small window" of hope for preventing the international agreement, aimed at stopping Tehran gaining nuclear weapons, from unravelling.
Both he and Tory leadership rival Boris Johnson later ruled out supporting Mr Trump should he pursue military action in the Gulf.
16 July: Ali Khamenei called the seizure of the Grace 1 tanker "piracy" and vowed to retaliate.
17 July: US officials said they suspected Iran had seized a Panamanian-flagged oil tanker from the United Arab Emirates as it travelled through the Strait of Hormuz. The tanker had turned off its tracker three days before as it entered Iranian waters. Iran later said its Revolutionary Guard had seized a foreign oil tanker and its crew of 12 for smuggling fuel out of the country.
18 July: Mr Trump said the USS Boxer had shot down an Iranian drone that came within 1,000 yards of the warship and ignored calls to stand down. Iranian military officials denied one of its drones had been lost in the Strait of Hormuz.
19 July: Two oil tankers were seized by Iranian authorities in the Strait of Hormuz. The UK registered tanker, Stena Impero, was seized for reportedly "violating international maritime rules" whilst the Mesdar, managed by Glasgow-based firm Norbulk Shipping UK, appeared to veer off course towards the Iranian coast.
Foreign Secretary, Jeremy Hunt called the ships' seizure "unacceptable" and the Government's emergency committee COBRA called a meeting overnight.
What is the situation as it stands?
Tensions between the US and Iran have ratcheted up several notches in recent weeks, with Washington dispatching warships and bombers around the Persian Gulf, and Tehran announcing it would break uranium stockpile and enrichment limits set by its nuclear deal with world powers.
These increased strains come a year after President Trump withdrew from Iran's 2015 nuclear accord with world powers and restored crippling sanctions. In turn, this prompted Iran to say it would not negotiate another deal with Washington.
Foreign Secretary Jeremy Hunt has previously said Britain is urging all sides in the dispute to "deescalate" in order to avoid a slide into armed conflict, but he also previously said the UK would consider joining the US in military action.
The Tory leadership hopeful has said recent events in the Gulf show the need for extra investment in the Royal Navy.
Why is the Strait so important?
Its size belies its importance as one of the most strategic waterways in the world, linking the Middle East's crude oil producers with key markets around the globe.
The Strait falls between the southern coast of Iran and the most northerly tip of Oman, a distance of around 20 miles at these pinch-points.
It has two shipping lanes, each around two miles wide. Between one-fifth and one-sixth of the world's oil moves through the strait - around 17 million barrels per day - a significant quantity of the valuable commodity.
Any impasse on oil leaving the Strait could have wide-ranging consequences - including soaring prices and disruption to world supplies.
Will British troops be sent to the region?
At the moment, no. There is already an undisclosed number of British service personnel in the Middle East, predominantly from the Royal Navy. There is a joint base at Duqm in Oman, with a Combined Maritime Forces base in Manama, Bahrain.
HMS Montrose has been in the region since April as part of a three-year deployment supporting counter-terror and anti-smuggling work. The Royal Navy has had a presence in the region for more than 30 years following the Iran-Iraq war in 1980 in what is known as Operation Kipion.
Ships from both the Royal Navy and Royal Fleet Auxiliary have been on patrol in the Gulf for 24 hours a day, seven days a week and 365 days a year, according to the Royal Navy.