An official at Iran's Culture and Islamic Guidance Ministry said Hassan Fahs had not been expelled but he had been declared "persona non grata" and would have to leave as soon as possible after his visa was not extended, IRNA news agency reported.
Mohsen Moghaddeszadeh, director of the ministry's foreign media department, said Fahs's visa had not been extended because of "undesirable behaviour" but this did not mean Al Arabiya's office was being closed, IRNA added.
Arabiya carried a report last month about plans for an Egyptian film called "Imam of Blood" that would criticise Ayatollah Ruhollah Khomeini, the founder of the Islamic Republic. The film idea has sparked protests in Iran.
Students of 10 universities in Iran called for the closure of Al Arabiya's offices in Iran over what they said was an "insulting" film about Khomeini and the Islamic Shi'ite faith, state radio reported on Tuesday, according to BBC monitoring.
Arabiya said Fahs was ordered to leave for biased reporting. In a later statement, it protested against Fahs's expulsion, said its news was balanced and that it gave Iranian officials the chance to respond to main reports on Iran.
Media rights group Reporters Without Borders criticised the move. "This expulsion order comes just two months after a European journalist's expulsion and is designed to intimidate all foreign journalists working in Iran," it said.
Arabiya said a film called "Road to Revolution" had also been controversial and led to calls for its office to be closed.
Fahs told Reuters he was informed he could stay until his residence visa expired in October but, if he left before, he would receive a "definitive exit" permit and would not get approval to return. "Definitive exit means expulsion," he said.
"The Iranians consider that Al Arabiya news is against Iran," said Fahs, adding that he planned to leave next week.
He said he had been told Iranian authorities would consider letting him work for another company, if he made a request.
Arabiya said the Egyptian film about Khomeini was being made in retaliation for an Iranian film, "Assassination of a Pharaoh", which portrayed the 1981 assassination of Egyptian President Anwar Sadat as the killing of a traitor by a martyr.
Arabiya said Mohamed Hassan al-Alfi, a member of Egypt's ruling National Democratic Party, was writing a script for the movie which would argue that Khomeini's ideology was behind Sadat's assassination.
Demonstrators previously protested outside Egypt's mission in Iran. Egypt only has an interests section in Iran and says Iran must first change the name of a street called after Sadat's assassin and meet other demands before full ties resume.
In July, AFP said the Iranian authorities had told a British journalist working for the French news agency to leave.
Another British journalist was forced to leave Iran when his residence permit was not renewed, his newspaper said at the start of the year. Iranian officials said he was not expelled. (Reporting by Firouz Sedarat in Dubai and Edmund Blair and Fredrik Dahl in Tehran)
