Eight Iranian citizens have been arrested on suspicion of having connection with the alleged espionage racket, Israel Radio's Persian language programme said.

An Iranian Foreign Ministry spokesman reportedly said that the affair was serious, but did not disclose whether or not those arrested are Jewish.

Iran had indicted 13 of its citizens in 1999, mostly Jews, on similar charges. They were tried in a closed Islamic court in 2000 and 10 were handed prison terms.

Iran agrees to nuclear freeze

They were later released before the completion of their prison terms following intense pressure and widespread condemnation from human rights groups and Western governments.

Israel's Chief of Staff Moshe Ya'alon last week said that Jerusalem would not only continue to impress upon the international community to put diplomatic pressure on Teheran but would also prepare for "other options" if such pressures do not yield desired results.

Other Israeli leaders have also been hinting at military preparations to thwart Iran's nuclear ambitions.