The protest came after days of demonstrations in Iran against Israeli attacks on Gaza.
The students, who had been demonstrating in front of the Egyptian Interests Section, close to British Embassy, moved down the road and entered the compound holding Palestinian and Hezbollah flags. They replaced the British flag with the Palestinian flag.
According to sources from inside the protest movement, about 1,500 students from across the country gathered to protest the British government's support for the Israeli regime. About 300 students managed to occupy the compound.
Police tried to prevent the angry demonstrators entering the embassy compound, firing shots into the air.
None of the embassy personnel were injured in the siege but windows were broken and a car was damaged. The part of the British Embassy stormed by the students is used as a residence and also the British Council in Tehran.
Residents said a local outlet of the Benetton department store was also attacked at about midnight. Leaving for work in the morning they saw goods, shelving and hangers piled up outside the shop and all the windows were broken.
Protesters demanded an immediate halt on all imports from foreign companies which "are or support Zionists."
A Jewish member of Iran's parliament condemned the military action in his speech Tuesday as dozens of Iranian Jewish students protested outside the United Nations office in Tehran (seen at left).
A number of Iranian student associations have asked the government to recall the country's ambassadors to Arab countries which have remained silent about Israel's ongoing military campaign in Gaza, and to close the Egypt Interests Section in Tehran.
(Egypt has refused to open its border with Gaza unless Palestinian President Mahmoud Abbas gains control of the crossing. Abbas has had no control in Gaza since Hamas rose to power after an election more than year ago. Egypt's refusal to open the border completes the isolation of Gaza imposed by Israel on all other sides.)
Iranian President Mahmoud Ahmadinejad has called for international support for the Palestinians in Gaza. He said the "real Holocaust" is now taking place in the Gaza Strip.
"It is very important for us to fulfill our humanitarian duties towards the defenseless people in Gaza and Palestine," said Ahmadinejad.
In response to Iranian Supreme Leader Ayatollah Seed Ali Khomeini's call for all Muslims to support the Palestinians and condemn Israeli actions, there have been more than 100 demonstrations across Iran in recent days.