Britain will seek to put together a European-led maritime mission to protect ships in the Strait of Hormuz, Foreign Secretary Jeremy Hunt has announced.
A further Royal navy warship will also be dispatched to the region following the seizure of a British-flagged tanker last week which was denounced by Mr Hunt as an act of "state piracy".
And he warned the Iranian regime it must get used to "larger western military presence" on its coastline after Theresa May and her senior minister met yesterday to discuss the UK's response to the crisis.
It came as pictures of the international crew on board the Steno Impero tanker were released.
Mr Hunt told MPs in the Commons: "We will seek to put together a European-led maritime protection mission to support safe passage of crew and cargo in this vital region.
"We have had constructive discussion with a number of countries in the last 48 hours and we will discuss later this week the best way to complement this with recent US proposals in this area."
He added; "It is with a heavy heart that we are announcing this increased international presence in the Gulf because the focus of our diplomacy has been on de-escalating tensions in the hope that such changes would not be necessary."
He added: "If Iran continues on this dangerous path, they must accept the price will be a larger Western military presence in the waters along their coastline, not because we wish to increase tensions but simply because freedom of navigation is a principle which Britain and its allies will always defend."
Downing Street has been hit by claims that the Government "dropped the ball" by failing to prepare for Tehran's actions against British shipping in the Strait of Hormuz.
The Prime Minister yesterday chaired a meeting of the Government's emergency committee Cobra to consider how to react to the capture of the Stena Impero on Friday.
Officials said the meeting would consider the options for "strengthening current reassurances" to commercial shipping as well as the response to Tehran.
The Prime Minister's official spokesman said: "We do not seek confrontation with Iran but it is unacceptable and highly escalatory to seize a ship going about legitimate business through internationally recognised shipping lanes."
The spokesman said the ship was seized under "false and illegal pretences and the Iranians should release it and its crew immediately".
The first pictures of the crew of the tanker have been released by Iranian authorities, with some members shown sitting around a table and another two in front of a nautical instrument.
Military experts have warned that cuts to the Royal Navy had left it over-stretched, with too few warships to protect British interests.
The Prime Minister's spokesman said: "The high volume of ships moving through the Strait of Hormuz - up to 30 ships covering more than 100 nautical miles - makes it impossible to escort vessels individually.
"We already work closely with international partners to ensure a co-ordinated effort to defend freedom of navigation, this includes sharing information on threats to shipping and offering mutual protection for each other's vessels."
Downing Street said there had not been a US offer to escort all UK ships in the region.
But the spokesman said: "The US has been discussing with a number of countries, including the UK, how we might deliver maritime security in the face of recent threats to shipping."
US Secretary of State Mike Pompeo told Fox News: "The responsibility ... falls to the United Kingdom to take care of their ships."
Foreign Secretary Jeremy Hunt will update the Commons on the situation on Monday afternoon, amid reports that ministers are considering freezing Iranian regime assets.
Frigate HMS Montrose is on duty in the Gulf but was unable to prevent the seizure of the Stena Impero.
Defence Minister Tobias Ellwood, speaking on ITV's Good Morning Britain, said: "There is much criticism about the Navy, about HMS Montrose not getting to there on time - I should actually point out that the USA have five or six warships in the region, including an aircraft carrier, and in the middle of June two of their tankers were attacked, one of them set ablaze.
"So, this is something that affects us all, it requires international co-operation, but also, most importantly, recognition that there's a bigger geostrategic challenge facing (us) here - that is the reason why Iran is doing those things."
Mr Ellwood continued his calls for more funding and investment for the armed forces in the face of more "diverse and complex threats" and said the Iranian issue is an example.
Retired commander of UK maritime forces Rear Admiral Alex Burton said cuts to the Royal Navy's fleet had limited its ability to act.
"There is no doubt that the size of the Navy since 2005 - reduced from 31 frigates and destroyers to now 19 - has had an impact on our ability to protect our interests around the globe," he told BBC Radio 4's Today programme.
"I credit the politicians for acknowledging this now but it should have been acknowledged and pressed earlier."
Chancellor Philip Hammond's parliamentary aide, Huw Merriman, told Today that the Government has "dropped the ball" over the situation.
He said: "We did not put in place a chain where we asked all of our vessels to leave at a certain time under convoy, so it was hardly a surprise when one of ours got taken."