Britain’s dispute with Iran turned ugly yesterday when hundreds of hardliners besieged the British Embassy in Tehran, pelting it with stones and thunder-flashes.

After a weekend when London and Tehran had hinted that they were trying to find a diplomatic solution, the violence raised fears that the row could follow the pattern of previous disputes that have led to severing bilateral ties.

About 200 students from Tehran University took part in the demonstration outside the British mission, in a huge compound in central Tehran. Riot police stood by as the protesters, who were members of the Basij religious militia, chanted “British, British, death to you, death to you” and demanded the expulsion of “the ambassador of the Old Fox”, a reference to the British envoy, Geoffrey Adams.

Some hurled stones and thunder-flash bombs, which make a loud explosion but cause no damage. Several dozen policemen prevented any of the protesters from entering the embassy compound, although a few did briefly scale a fence that lies outside the compound’s walls before being pushed back. Smoke was seen billowing from inside the compound, but a diplomat said that no one was hurt.

One demonstrator gave warning from a podium that the British Embassy could face a similar fate to that of the US mission in Tehran if “Britain keeps on speaking nonsense”, drawing cheers from the crowd. In 1980 Islamist students stormed the US compound taking American diplomats hostage for 444 days.

“We heard some bangs but there is no damage and no fire. We are carrying on with work,” said a British diplomat from inside the compound.

“I think they [the British] should apologise because they have no right to come into our country,” said Mohammed Mehdi Pourmoghaddam, a 25-year-old student. He said that the 15 sailors and Marines seized by Iranian Revolutionary Guards should be held until “the Government of England apologises”.

The demonstration yesterday, which could not have taken place without official sanction, may have been in response to earlier allegations made by the Iranians that their consulate in the southern Iraqi city of Basra had been attacked by British forces on Thursday.

“Following British forces’ movements and shootout around the Iranian consulate in Basra the Foreign Ministry submitted a note of protest to the British Embassy in Tehran,” said a statement from the Iranian Foreign Ministry.

The British military denied any such incident had taken place, insisting that soldiers had been fired on during a routine patrol near the Iranian consulate but never left their vehicles.

The British Embassy in Tehran was shut down three times in the turbulent decade that followed the Shah’s overthrow in 1979.

On one occasion in 1978 – a turbulent year before the Islamic Revolution – the embassy was ransacked by a crowd who forced open the high gates. In the early 1980s a street flanking the embassy was renamed after the IRA hunger striker Bobby Sands, although a new street sign now gloriously misspells it as Babi Sandz street. However, taxi drivers still refer to it by its old name – Churchill Street.

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