Iran has rejected claims by eight British servicemen that they were "forcibly escorted" into its territorial waters before being taken captive.
The servicemen have returned to British units in Iraq
The men maintain they were operating in Iraq's waters and had not strayed into Iran's, UK defence secretary Geoff Hoon said.
But Iran's foreign ministry claims British officials have admitted the boats entered its waters by mistake.
The servicemen were held for three
days, sparking a stand-off with the UK.
Foreign Secretary Jack Straw expressed concern about the row and urged the Iranian authorities to return confiscated British equipment.
He said: "We would be greatly assisted if and when we get back the global positioning equipment because that would tell us for certain where they were," he said.
In a statement released by the Ministry of Defence on Wednesday, Mr Hoon said the MoD was looking into the servicemen's story.
He also expressed concern about "the blindfolding of the men" during their captivity and added the UK had made representations to ... Iran."
Shadow foreign secretary Michael Ancram described the alleged treatment of the servicemen as "absolutely outrageous" and demanded a "full apology" from Iranian authorities if the claims are true and called for a Commons statement.
But Commons leader Peter Hain on Thursday rejected those calls on the handling of this "very sensitive" issue.
Iranian foreign ministry spokesman Hamid Reza Asefi said he was surprised at the content of Mr Hoon's statement, as officials had already explained what had happened.
"During the hand-over of the British servicemen in Tehran, the British charge d'affaires signed the minutes of the meeting that he attended with the relevant Iranian officials.
"The minutes admitted that the British boats entered the Iranian waters by mistake," Mr Asefi said in a statement issued through Iran's official news agency.
And, he added, Mr Straw, during a telephone conversation with Iran's Foreign Minister, Kamal Kharrazi, had also said the British soldiers entered Iranian waters by mistake.
Responding to that issue the foreign secretary said later: "The sequence is that initially we thought, and a British Army spokesman said, that the servicemen had strayed into Iranian waters by mistake. In their debrief, I understand the crews have said that they were on the Iraqi side of the border."
The BBC's David Loyn said it will be "very hard" getting to the truth of this.
The exact line of the border in the Shatt Al-Arab is disputed between Iran and Iraq, and was one of the causes of their long war in the 1980s which left approximately one million dead.
"By seizing the men Iran was probably sending a signal to the new regime in Iraq as much as it was to Britain, wanting to remind them of Iran's strength and that the border remains unfinished business between the two countries," Loyn said.
Iranian forces are currently massing for a routine military exercise along Iran's land border with Iraq further north of the waterway.
He added that while the British denial that its servicemen had strayed into Iranian waters is likely to prolong the return of its navigational equipment, it is the equipment itself that can ultimately retrace the exact movements of the team.
THE SHATT AL-ARAB
120 miles of tidal waterway
Formed by Tigris and Euphrates rivers
Subject to 1639 Persian-Ottoman treaty
Southern stretch forms border between Iraq and Iran
River is vital trade route for both countries
Control of river one of disputes causing Iran-Iraq war in 1980
Tony Blair's official spokesman said inquiries were continuing into the exact circumstances but Britain believed the sailors had been engaged in a routine operation.
Asked whether it had been premature to apologise to Iran, he said the priority had been to get the men home.
It would be for Britain's Ambassador in Tehran to raise any issues direct with the Ministry of Foreign Affairs, he said.
For the Lib Dems Paul Keetch said: "This is potentially a new twist to the story. The GPS [global positioning system] equipment has yet to be returned. When it is, it may well shed more light on the matter."
Mr Hoon said the Iranians had failed to comply with Tuesday's deadline to return equipment carried by the men including three boats, radios and navigational equipment, weapons and ammunition.