A spokesman said the move to indict Hossein Rassam, the British embassy's chief political analyst, alongside a number of defendants accused of inciting anti-government unrest was based on a "gross misinterpretation" of what constitutes legitimate activity for embassy staff across the globe.
Rassam has been in court as part of a mass trial of individuals arrested after huge protests in Iran following last month's disputed presidential elections.
Rassam was one of nine British officials held in the wake of the demonstrations against the re-election of President Mahmoud Ahmadinejad.
He is the only British official to face charges, reported to be of espionage and harming national security, and is now on trial alongside other people including French embassy staff.
Foreign Secretary David Miliband has said he is "deeply concerned" at the decision to put Rassam on trial, and that the proceedings brought "further discredit on the Iranian regime".
Iran has blamed Britain, along with the US and other foreign powers, of stirring dissent and actively fomenting the demonstrations which are ongoing despite brutal crackdowns.
Tonight a Foreign Office spokesman said: "The indictment against the defendants in the mass trial which opened in Tehran on August 9, 2009 rests on a gross misinterpretation of what constitutes legitimate activity for embassies and their foreign and local staff in any country in the world. "Britain is not engaged in any plot to undermine the Islamic Republic of Iran through a so-called velvet revolution or any other means.
"The indictment does not present any evidence to support this supposition. Instead it starts from the assumption that there was a plot against Iran, and then interprets legitimate embassy activity so as to fit the plot theory." Foreign journalists have been barred from attending the proceedings in Tehran.
Rassam told the court a 300,000 pounds budget had been allocated to establishing contacts with political groups ahead of the election, including Mir Hossein Mousavi, the reformist opposition candidate who claims he was robbed of victory, according to the Iranian reports about the trial.
But the Foreign Office tonight said: "A large part of the job of any diplomat is to understand the country in which he or she is posted. The only way to do this is to talk to people from all sectors and strands of opinion - both government and opposition.
"Travel by diplomats, meeting politicians and journalists, encouraging educational links, understanding the economy, showing an interest in what will happen in elections and so on are normal activities in every country, as any experienced diplomat knows.
These sorts of activities are recognized as legitimate in the Vienna Convention on Diplomatic Relations, to which both the UK and Iran are parties.
"To help in that task it is entirely normal to have local staff whose experience allows diplomats to understand events and to help them meet influential people. There is no contradiction between being a patriotic and honorable Iranian and working in this capacity for a foreign embassy in Iran."