Iran has expelled Canada's ambassador, Canadian Foreign Affairs Minister Maxime Bernier has said in a statement.
"Canada regrets the decision of the government of Iran to order our ambassador to leave Tehran, which is entirely unjustifiable," he said.
He said the move came after Ottawa failed to approve Iran's proposed diplomatic representation to Canada.
He said the Canadian embassy in Iran would be headed by Canada's charge d'affaires for the time being.
"As always, Canada remains prepared to receive an Iranian ambassador provided a suitable candidate is presented," Mr Bernier said.
New Kazemi investigation
Relations between the two countries have been strained since a Canadian-Iranian journalist died in police custody in Iran in 2003.
Canadian-Iranian photojournalist Zahra Kazemi died in Iranian police custody in 2003
Ms Kazemi died from head injuries while in Iranian police custody
Iran's Supreme Court has ordered a new investigation into the death of photojournalist Zahra Kazemi, who died from blows to the head received during more than three days of interrogation at Evin prison in Tehran.
She had been detained without charge in June 2003 while taking photographs outside Evin prison in the north of the Iranian capital.
An intelligence ministry agent, Mohammad Reza Aghdam Ahmadi, was acquitted of a charge of "semi-intentional murder" in 2004.
In November, the UN passed a Canadian-sponsored resolution condemning Iran's "systematic violations of human rights".
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