The Foreign Office announcement comes one year after the reopening of the British Embassy in Tehran.
"This is an important moment in the relationship between the UK and Iran," Foreign Secretary Boris Johnson said.
Nicholas Hopton, a former British ambassador to Qatar and Yemen, will take up the role of ambassador.
The British embassy in Tehran was closed after it was stormed and ransacked by protesters in November 2011.
The
embassy was reopened in August 2015 by then-British Foreign Secretary
Philip Hammond and the two countries resumed ties on Charge d'Affaires
level.
"The upgrade in diplomatic relations gives us the opportunity to
develop our discussions on a range of issues, including our consular
cases about which I am deeply concerned," Boris Johnson said in a
statement.
"I hope this will mark the start of more productive
co-operation between our countries, enabling us to discuss more directly
issues such as human rights and Iran's role in the region."
Mr Hopton joined the Foreign & Commonwealth Office in 1989 and was the British ambassador to Qatar from 2013 to 2015.
He also served as the British ambassador to Yemen and at the British Embassies in Paris, Rome and Rabat.


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