Foreign Secretary William Hague will announce a plan on Tuesday which will lead to the re-opening of the British embassy in Iran's capital, Tehran.
Full diplomatic relations with Iran were suspended after attacks on the British embassy in Iran in 2011.
The election of a new Iranian president and agreement on how to deal with Iran's nuclear programme has warmed diplomatic relations.
Mr Hague is expected to take questions from MPs at 11:30 BST.
The shared interest in confronting Isis militants in Iraq has accelerated contacts between the West and Iran.
BBC political editor Nick Robinson said William Hague spoke to Iran's foreign minister over the weekend.
'More constructive'Robinson said he understood that the statement - a written one to MPs at 09:30 BST- would not lead to the instant re-opening of the embassy and that it would be conditional on diplomatic progress being maintained.
He said the election of Hassan Rouhani as president last year, regarded as much more moderate than his predecessor, had been an important step towards improving relations between Iran and the West.
Events in Iraq had given this gradual process of detente a "mighty great shove", he added.
Sir William Patey, a former British ambassador to Iran, said it was potentially a "very significant moment" for dealings between the two countries.
He told BBC Radio's 4 Today programme that there had been an improvement in diplomatic relations over recent months following Iran's agreement to scale back its nuclear programme earlier this year.
The current turmoil in Iraq meant there also was a "short-term congruence of interests" that made the move more likely and which could also lead to what he described as "arm's-length" military co-ordination between Tehran, Baghdad and Washington.
"There is a prospect of having a more constructive relationship with Iran because there is a bigger enemy - which is Isis," he said.
However, he warned the "potential for falling out with Iran is always very high".
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