The source said the plan involves a "temporary recall of a few days as a sign of protest," but added that there was a degree of hesitation over the issue.
"The British proposal is doing the rounds amongst the EU member states… We should know more on Thursday when a meeting is set to be held in Stockholm between the political directors of the (different European) foreign ministries," the source said.
The source stressed that no deal on a recall had been reached as yet, while another European diplomatic source admitted it would be difficult for all 27 EU member states to agree on such a measure.
One EU diplomat told AFP there were "a number of suggestions on the table," one of which includes "a coordinated pull-out of all EU ambassadors from Tehran."
"(But) I am not sure that will be the first step, the diplomat said.
"What we want to ensure is that the measures we take ensure the release of the detained staff," the source said.
Nine local employees from the British embassy were arrested by Iranian authorities on June 28.
On Wednesday, the Iranian domestic news agency Fars reported that three members of staff were still being detained for their alleged role in the post-election violence.
Iran's state-run Press TV meanwhile said only one local staff member was still being held.
The issue could resolve itself and the EU take no action if Iran continues to release the imprisoned embassy employees.
Iran accuses Britain of having orchestrated the protests against the result of the country's recent presidential vote, which sparked the most violent protests in the history of the Islamic Republic and in which at least 20 people lost their lives.
The Iranian authorities allege the British embassy sent its staff into the midst of the opposition demonstrations to stir up trouble — a charge Britain vehemently denies.
Swedish Prime Minister Fredrik Reinfeldt, whose government took over the six-month rotating EU presidency Wednesday, described the Iranian allegations as "totally unfounded."
Reinfeldt told journalists in Stockholm that the EU should support those in favour of democracy in Iran, but should be careful that their actions do not stir up tension inside the country.
"We must ask ourselves the question: how can we support this and at the same time not… polarise Iran from the rest of the world … and not be an excuse for the use of violence or use of repression inside Iran. That's the balance we need to strike," he said.
Both the EU and the US have been cautious not to antagonise Iran for fear it could jeopardise planned talks on its nuclear programme.
Iran and the nuclear question are at the top of the agenda in meetings between senior foreign policymakers in Stockholm set to be held Thursday and Friday, a diplomat told AFP.
