UPDATE 2-Iran rushes through law expelling British ambassador

Mon Nov 28, 2011 8:54am EST

* Iran retaliates for new UK sanctions over nuclear issue

* Bill raced through ahead of EU ministerial meeting

* Tehran summons Hungarian envoy over flight denial -report

* Central bank denies U.S. money laundering charge

By Mitra Amiri

TEHRAN, Nov 28 (Reuters) - A bill to downgrade Iran's ties with Britain got final approval on Monday a day after parliament approved the measure compelling the government to expel the British ambassador in retaliation for sanctions imposed over Tehran's nuclear activity.

The exceptionally rapid move by the Guardian Council, a panel of 12 clerics and jurists who judge whether legislation is Islamic, reflects the urgency with which Iran is treating its reaction to the sanctions announced by Britain last week.

Britain acted after a Nov. 8 report by the U.N. nuclear watchdog presenting intelligence it said suggested Iran had worked on designing an atom bomb. Iran says the intelligence is forged and that its nuclear programme has wholly peaceful aims.

"The members of the Guardian Council, after examination of the plan, have approved it unanimously," council spokesman Abbasali Kadkhodai was quoted as saying on the website of the Iranian state broadcaster IRIB.

The bill requires the departure of the British ambassador within two weeks, leaving the embassy to be run by a charge d'affaires. The British government has called the legislation "regrettable" and "unwarranted".

Passed by legislators who chanted "Death to England" on Sunday, the law looked like a payback for London's decision to ban British banks from dealing with Iranian ones, including the Central Bank of Iran (CBI).

Members of parliament said Iran would take similar action against any other countries that follow Britain's example.

European Union foreign ministers are due to meet on Thursday to approve new sanctions that could cut financial links and ban oil imports from Iran over suspicions that it is trying to develop nuclear weapons.

MINISTER'S FLIGHT BLOCKED

Iranian media reported that Foreign Minister Ali Akbar Salehi had been refused entry to EU air space to attend a meeting of the Organisation for the Prohibition of Chemical Weapons in the Netherlands on Monday.

Student news agency ISNA said Tehran had summoned the Hungarian ambassador to explain why Salehi's plane had been refused permission to cross the EU country's air space, quoting an Iranian foreign ministry source saying technical problems cited by Hungarian authorities were "unconvincing".

The Hungarian and Iranian foreign ministries were not immediately available for comment.

The European measures are part of a U.S.-led drive to isolate the Islamic Republic and force it to suspend uranium enrichment, which Tehran says is its sovereign right but which the West says looks suspiciously like an atom bomb programme.

Washington stopped short of imposing sanctions that would stop other countries dealing with Iran's central bank, considered a "nuclear option" due to the devastating effect it could have on Iran's oil-based economy.

The central bank receives payment for the more than 2 million barrels of oil Iran exports each day, so cutting it off from the global financial system would be a hammer blow.

The United States did declare the CBI an area of "primary money laundering concern," a step designed to dissuade non-U.S. banks from dealing with it. The bank denied the charge.

"The financial resources of the CBI are principally from the sale of oil and its derivatives which are deposited with this bank on the basis of the country's monetary and banking law, and they are managed by the international banking system," the CBI said in a statement on its website.

"The alleged performing of laundering operations on this source is a completely baseless and unprofessional claim."

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