The rodents were found near the Iranian border allegedly equipped with eavesdropping devices.
The reports have come from the official Islamic Republic News Agency (IRNA).
When asked about the confiscation of the spy squirrels, the national police chief said: “I have heard about it, but I do not have precise information.”
The IRNA said that the squirrels were kitted out by foreign intelligence services – but they were captured two weeks ago by police officers.
A Foreign Office source told Sky News: “The story is nuts.”
But if true, this would not be the first time animals have been used to spy.
During World War II the Allied Forces used pigeons to fly vital intelligence out of occupied France.
More recently, US marines stationed in Kuwait have used chickens as a low-tech chemical detection system.
And it is well documented that dolphins have been used to seek out underwater mines.
It is even claimed that M15 once planned to recruit a team of specially-trained gerbils as a secret weapon to sniff out spies.
