By Andrew Osborn and Peter Griffiths
LONDON (Reuters) - Britain and Iran have started talks aimed at restoring diplomatic relations two years after an angry mob ransacked the British embassy, Foreign Secretary William Hague said on Tuesday.
The announcement reflects a significant thawing in Iran's relations with the West which imposed tough economic sanctions on Tehran after the embassy storming. It may raise hopes of a breakthrough in talks with world powers about its disputed nuclear program in Geneva next week.
Hague said there had been a "marked change" for the better in Iran's approach since Hassan Rouhani was election president in June, replacing hardliner Mahmoud Ahmadinejad.
"Both our countries will now appoint a non-resident charge d'affaires tasked with implementing the building of relations, including interim steps on the way towards (the) eventual reopening of both our embassies," Hague told parliament.
"It is clear that the new president and ministers in Iran are presenting themselves and their country in a much more positive way. We must test the Iranian government's sincerity to the full."
Britain's two diplomatic compounds in Tehran were overrun on an afternoon in November 2011 in what London said was a co-ordinated attack, after a rally against British sanctions escalated into violence and protesters scaled the walls.
As crowds smashed and burned buildings and documents, diplomats inside feared they would suffer a similar fate to U.S. staff who were held for 444 days after their embassy was seized in 1979.
Although the protesters withdrew after a rampage lasting several hours, Britain immediately withdrew all staff, closed the embassy, and ejected Iranian diplomats from London.
It was the worst crisis between Britain and Iran since full diplomatic relations were restored in 1999, a decade after Ayatollah Ruhollah Khomeini's fatwa that British author Salman Rushdie should be killed for writing "The Satanic Verses".
Hague told parliament he had held two meetings with Iranian Foreign Minister Mohammad Javad Zarif in New York in September and that junior officials from the two countries had met since.
"It is understood on both sides that given this history, progress in our bilateral relationship needs to proceed on a step-by-step and reciprocal basis," Hague told lawmakers.
"The foreign minister and I agreed our officials would meet to discuss this. The first such meeting has already taken place, and will be followed by a further meeting in Geneva next week."
Officials will discuss the numbers of local staff to be allowed to work in the embassies in each country, he said.
However, Hague said progress would depend on tangible changes rather than rhetoric and the West was unlikely to ease sanctions unless it saw real concessions on the nuclear issue.
"Iran remains in defiance of six U.N. Security Council resolutions ... and it is installing more centrifuges in its nuclear facilities," he said.
"In the absence of substantial change to these policies, we will continue to maintain strong sanctions. A substantial change in British or Western policies requires a substantive change in that program."
(Additional reporting by William James; Editing by Robin Pomeroy)