In a statement to the House of Commons, David Lammy also confirmed 63 British nationals had been evacuated on an RAF flight out of Israel.
He said: "My message for Tehran was clear, take the off ramp, dial this thing down, and negotiate with the United States seriously and immediately.
"The alternative is an even more destructive and far-reaching conflict, which could have unpredictable consequences.
"The situation presents serious risk to British interests in the region, having moved in additional assets on a precautionary basis, force protection is at its highest levels. Be in no doubt, we are prepared to defend our personnel, our assets and those of our allies and partners.
"We are closely monitoring how energy markets are responding to the conflict, and we have been extremely clear with the Iranians, any action to blockade the Strait of Hormuz would be a monumental act of economic self-harm, making a diplomatic solution even harder."
Mr Lammy also said the Government recommends "that British nationals in Qatar shelter in place until further notice".
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