Iran's supreme leader Ayatollah Ali Khamenei warned Western leaders against meddling on Monday as Britain said that all but one embassy employee detained for allegedly stoking unrest now been freed.

Khameini admitted there are "differences" among Iranians following the bitterly disputed re-election of President Mahmoud Ahmadinejad last month but warned the West not to exploit the worst crisis in the Islamic republic since the 1979 revolution.

"The Iranian nation warns the leaders of those countries trying to take advantage of the situation, beware! The Iranian nation will react," Khamenei said in a televised speech.

"The leaders of arrogant countries, the nosy meddlers in the affairs of the Islamic republic, must know that no matter if the Iranian people have their own differences, when you enemies get involved, the people... will become a firm fist against you."

Facing global concern about the June 12 election and an ensuing crackdown on the opposition, Iranian leaders fired back, accusing Britain and the United States in particular of seeking to exploit the public protests to destabilise the Islamic regime.

It expelled two British diplomats last month, prompting a tit-for-tat response from London, and detained nine locally recruited British embassy staff, accusing them of instigating riots during the massive public demonstrations in Tehran.

At least 20 people were killed and more than 1,000 arrested in the unrest, according to police, while human rights groups have said as many as 2,000 were detained.

Despite the crackdown, the Iranian opposition remains defiant, with Ahmadinejad's main defeated rival Mir Hossein Mousavi renewing his accusations that the voting process was full of "irregularities."

Britain said on Monday that the eighth of the nine embassy staff detained had been released on Sunday, leaving one in custody.

"The Iranian regime must be clear that if this action continues and we are forced to act, we will act together with our European partners," British Prime Minister Gordon Brown said.

A top Iranian cleric said on Friday that some of the British embassy staff would be put on trial, but did not say how many, while European Union governments had called in Iranian ambassadors across the 27-nation bloc in protest at the detentions.

Russia however has warned against a harsh response, saying it could jeopardise talks over Iran's nuclear programme, which the West suspects is a cover for a weapons drive despite Tehran's denials.

Tehran and Washington engaged in a new war of words over the nuclear programme on Monday after Vice President Joe Biden said the United States would not stand in Israel's way in its dealings with Iran's nuclear ambitions.

The chairman of the Iranian parliament's national security and foreign policy committee, Alaeddin Boroujerdi, warned Iran would respond to any attack by its arch-foe Israel, the Middle East's sole if undeclared nuclear armed state.

"If (an Israeli attack) occurred, then the Islamic Republic of Iran will respond in a very full-scale and very decisive way."

Biden told US television network ABC that "we cannot dictate to another sovereign nation what they can and cannot do when they make a determination, if they make a determination, that they're existentially threatened."

Israel has accused the United States and the international community of failing to take a hard enough line on Iran's nuclear ambitions, which Israel sees as the greatest threat to its security.

But the chairman of the US Joint Chiefs of Staff, Admiral Mike Mullen, said that despite the new US administration's openness to dialogue with Tehran, it was important that Washington not exclude a resort to military action.

"I think it's very important, as we deal with Iran, that we don't take any options, including military options, off the table."

However, he added: "It could be very destabilising, and it is the unintended consequences of that which aren't predictable."