The Israeli and Iranian tourism ministers were introduced at a reception hosted by the Spanish king in Madrid and shook hands, a spokesman for Israel's Tourism Minister Stas Mezeshnikov said earlier.
Iran's Cultural Heritage and Tourism Organization denied any such gesture had been made, ISNA news agency reported.
"The rumor, with certain aims, about a meeting between Iranian and the occupying regime's (Israeli) officials is a baseless rumor based on the imagination of an ill-minded British media," said the statement carried by ISNA.
"We stress again that Islamic Republic of Iran will never acknowledge a state under the name of Israel and considers permanent confrontation with such a regime to be its duty," it said.
Iran and Israel have been enemies since the 1979 Islamic revolution when Tehran cut ties. Hard-line President Mahmoud Ahmadinejad has called for Israel's destruction.
Israel, which is thought to possess an undeclared nuclear arsenal, has urged stronger international sanctions against Iran's nuclear energy program.
The United States and its allies fear the program is aimed at building an atomic bomb. Tehran denies this saying it is only interested in creating electricity.
(Writing by Reza Derakhshi, Editing by Matthew Jones)
