By Zahra Hosseinian and Hossein Jaseb

TEHRAN (Reuters) – Iran’s Supreme Leader Ayatollah Ali Khamenei vowed on Wednesday he would not budge in response to protests over a disputed election that has sparked the biggest street demonstrations since the 1979 Islamic revolution.

(EDITORS’ NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to report, film or take pictures in Tehran.)

“I had insisted and will insist on implementing the law on the election issue … Neither the establishment nor the nation will yield to pressure at any cost,” Khamenei said.

Now that riot police and religious militia have regained control of the streets, Iran’s hardline leadership seems to be taking a harsher line with its foreign and domestic critics.

Foreign Minister Manouchehr Mottaki said Tehran was weighing whether to downgrade ties with Britain after tit-for-tat expulsions of diplomats this week. He also announced he had “no plans” to attend a G8 meeting in Italy this week on Afghanistan.

His remarks, a day after U.S. President Barack Obama said he was “appalled and outraged” by the clampdown in Iran, provided more evidence of rising tension with the West.

Western diplomats had seen the June 25-27 event as a rare chance for Group of Eight nations to discuss with regional powers such as Iran shared goals for Afghanistan and Pakistan.

The unexpected upheaval in Iran has thrown a spanner into Obama’s plans to engage the Islamic Republic in a substantive dialogue over its nuclear programme, which Tehran says is peaceful but which the West suspects is for bomb-making.

Iran has accused the United States and Britain of fomenting post-election unrest and has paraded detained protesters on state television confessing that Western media had incited them.

Security forces have clamped a tight grip on Tehran to prevent more rallies against poll, which reformists say was rigged to return President Mahmoud Ahmadinejad to power and keep out moderate former Prime Minister Mirhossein Mousavi.

Mousavi’s wife, Zahra Rahnavard, demanded the immediate release of people detained since the election and criticized the presence of armed forces in the streets, his website reported.

“It is my duty to continue legal protests to preserve Iranian rights,” Rahnavard, who actively campaigned with her husband before the election, was quoted as saying.

BRITONS ACCUSED OF JOINING RIOTS

Intelligence Minister Gholamhossein Mohseni-Ejei said some British passport-holders had been involved in “riots,” the semi-official Fars news agency reported.

He said one of those arrested was “disguised as a journalist and he was collecting information needed by the enemies.”  Continued…