American soldiers arrested a group of Iranians, including two diplomats, in Baghdad last night, just hours after President Bush lashed out at Iran for meddling in Iraq’s affairs.

In a move that is likely to further escalate tensions between Washington and Tehran, soldiers detained the group of eight Iranians – including one woman - and seven Iraqis after finding unauthorised weapons in their convoy of cars. They were held overnight before being released this morning.

The Iranians were taken in blindfolds and handcuffs from the Sheraton hotel in Baghdad after their convoy was stopped at a nearby checkpoint and weapons, including an AK-47 assault rifle and two 9mm pistols, were seized.

During the incident US troops also confiscated a laptop, mobile phones and a briefcase full of Iranian and American money in the hotel.

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According to the US military, the weapons had been in the possession of the Iraqis in the group who were serving as a protective detail but had no weapons permits.

The Iranians, who included two embassy staffers and six members of a delegation from Tehran's Energy Ministry, were released to the Iraqi government this morning.

According to an adviser to Nouri al-Maliki, the Iraqi Prime Mnister, they had been invited to Iraq by the Ministry of Electricity to discuss the construction of a new power plant

However the fate of the Iraqis - who identified themselves with Iraqi Ministry of Electricity badges - was not immediately clear, and the military did not say whether the confiscated items were returned.

It is the second time US troops have arrested Iranians in Iraq this year. In January five Iranians working in the Kurdish city of Arbil were seized for allegedly aiding the anti-American insurgency. They are still in US custody.

Tehran has condemned the overnight incident as “unjustifiable’’.

Tensions between the two foes have been running high over Iran’s contested nuclear drive and claims by the US that Iran is stoking the violence in Iraq.

In a speech to the American Legion convention in Reno, Nevada, yesterday, President Bush said that he had “authorised our military commanders in Iraq to confront Tehran’s murderous activities’’.

He also warned that Iran’s pursuit of the atomic bomb could lead to a nuclear holocaust in the Middle East and promised to confront Tehran “before it is too late".

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