Iran has downgraded diplomatic ties with Australia, its foreign ministry said on Thursday, a week after Australia expelled the Iranian ambassador over accusations that Tehran directed two antisemitic arson attacks in the cities of Sydney and Melbourne.

"According to diplomatic law and in response to Australia's action, the Islamic Republic has also reciprocally reduced the level of Australia's diplomatic presence in Iran," Foreign Ministry spokesperson Esmaeil Baghaei said, adding that Canberra's ambassador had left Iran.

Australian Prime Minister Anthony Albanese said last week that operations at Australia's embassy in Tehran were suspended and all Australian diplomats were safe in a third country.

Canberra's decision to expel the Iranian ambassador, its first such move since World War Two, was the latest example of a Western government accusing Iran of carrying out hostile covert activities on foreign soil.

The Islamic Republic has denied the Australian accusations."The accusation of antisemitism against Iran is ridiculous and baseless," Baghaei said, adding that Tehran does not welcome the deterioration in bilateral relations with Canberra.

Iranian officials said Tehran's embassy in Canberra was continuing to provide consular services.