The British sailors and marines seized by Iran in the Gulf over a week ago may face trial, Tehran's ambassador to Moscow was quoted as saying, suggesting legal action had already started.
Eight days after Iran detained the 15 British naval personnel, triggering a diplomatic crisis, there was no sign on Saturday Tehran would bow to Western pressure and free them.
Britain says its navy personnel were in Iraqi waters and has demanded their release, but Iran insists they had crossed into its territory. Their capture and an international standoff over Iran's nuclear ambitions have sent oil prices to 2007 highs.
"It is possible that the British soldiers who entered into Iranian waters will go on trial for taking this illegal action," Ambassador Gholamreza Ansari told Russian television channel Vesti-24, according to Iran's IRNA news agency.
"The legal phase concerning these British soldiers has started and if charges against them are proven, they will be punished," said Ansari. IRNA said he spoke on Friday evening.
Foreign Minister Manouchehr Mottaki said on March 25 Iran was considering charging the British sailors with illegally entering its waters. Ansari appeared to suggest the process had started but did not specify what the legal moves were.
Iranian officials were not available for comment. Iran has close diplomatic and commercial ties with Russia.
Asked about the report, a Foreign Office official in London reiterated the demand for the Britons' release. "We are not going to get drawn into public discussions with the Iranians."
Separately on Saturday, student members of the Basij religious militia from across Iran demanded in a statement that the British embassy in Tehran be closed down, calling it the "corruption nest of the British old devil", IRNA said.
It came a day after Iran displayed three of the detained Britons on television and released a letter from one saying she was being held because of "oppressive" British and US behavior in Iraq.
British Prime Minister Tony Blair said the footage increased people's disgust at their treatment and risked isolating Tehran further. He urged calm and patience over the crisis.
Britain has been pushing for international condemnation but failed to get the UN Security Council to pass a strongly worded draft statement. Instead, it expressed "grave concern".
EU foreign ministers voiced solidarity with Britain at a summit in Germany but stopped short of suspending normal business with Tehran as London has done.
"If London truly wants to solve the issue ... it has to send a special committee to Tehran and (do it) through negotiations," said Iranian lawmaker Alaeddin Broujerdi, who heads parliament's national security and foreign policy commission.