Iranian Revolutionary Guard forces have been spotted by British troops crossing the border into southern Iraq, The Sun tabloid reported on Tuesday.
Britain's defence ministry would not confirm or deny the report, with a spokesman declining to comment on "intelligence matters".
An unidentified intelligence source told the tabloid: "It is an extremely alarming development and raises the stakes considerably. In effect, it means we are in a full on war with Iran -- but nobody has officially declared it."
"We have hard proof that the Iranian Revolutionary Guard Corps have crossed the border to attack us. It is very hard for us to strike back. All we can do is try to defend ourselves. We are badly on the back foot."
The Sun said that radar sightings of Iranian helicopters crossing into the Iraqi desert were confirmed to it by very senior military sources.
I can't judge the validity of this report, but the lack of response is consistent with our incredible ability to ignore Iran's war against us.
Can we destroy their regime yet?UPDATE: Iran won't stop attacking us!
Iranian operatives are training fighters in Iraq and helping to plan attacks there despite diplomatic pressure on Tehran to halt such interference, U.S. officials said on Wednesday.
The latest accusation leveled against Iran by the U.S. military followed rare diplomatic talks in Baghdad last month between the two old adversaries to discuss Washington's concerns in Iraq.
"There absolutely is evidence of Iranian operatives holding weapons, training fighters, providing resources, helping plan operations, resourcing secret cells that is destabilizing Iraq," said military spokesman Brigadier-General Kevin Bergner.
These are dark days indeed when a sternly worded diplomatic note fails to have an impact in Tehran!