Saudi Arabia said on Monday it would restore ties with Iran when Tehran stopped meddling in the affairs of other countries and pledged that Riyadh would continue to work "very hard" to support bids for peace in Syria and Yemen despite the spat.

Saudi Arabia cut all ties with Iran on Sunday following the kingdom's execution of prominent Shi'ite cleric Nimr al-Nimr. Protesters in Iran and Iraq marched for a third day to denounce the execution.

When asked what it would take for ties to be restored, Saudi U.N. Ambassador Abdallah Al-Mouallimi told reporters: "Very simple - Iran to cease and desist from interfering in the internal affairs of other countries, including our own."

"If they do so, we will of course have normal relations with Iran," he said. "We are not natural-born enemies of Iran."

On Monday, Bahrain and Sudan cut all ties with Iran, following Riyadh's example. Saudi Foreign Minister Adel al-Jubeir told Reuters Riyadh would also halt air traffic and commercial relations between the rival powers.

Jubeir blamed Iran's "aggressive policies" for the diplomatic action, alluding to years of tension.

The United Arab Emirates (UAE), home to hundreds of thousands of Iranians, partially downgraded its relations but the other Gulf Arab countries - Kuwait, Qatar and Oman - stayed above the fray.

CALLS FOR RESTRAINT

Crude importer China declared itself "highly concerned" with the developments, in a rare foray into Middle East diplomacy. The United States and Germany called for restraint.

Russia offered to mediate an end to the dispute but a US senior State Department official said Iran and Saudi Arabia must work out their differences themselves.

"It is not going to be helpful for us to own this process, certainly to be seen to be driving it," the US official said. "They have to work this out between themselves if a solution to this tension is going to be long lasting and sustainable."

Brent jumped 4 per cent early on worries about the tensions. But the crude oil benchmark erased its gains and settled a few cents lower as fears rose about the global economy and the Middle East dispute looked unlikely to disrupt oil supplies immediately.

Stock markets across the Gulf dropped sharply, led by Qatar which fell more than 2.5 per cent, with geopolitical jitters outweighing any benefit from stronger oil.

SYRIA, YEMEN

The row threatened to derail efforts to end Syria's five-year-old civil war, where Saudi Arabia and other Gulf Arab powers support rebel groups against Iran-backed President Bashar al-Assad.

Saudi Arabia has been instrumental in bringing together Syria's political and armed opposition groups that would participate in peace talks with Assad's government.

State Department spokesman John Kirby told reporters that Washington expected meetings between the warring parties in Syria to take place as scheduled this month. The United Nations aims to hold talks on Jan. 25 in Geneva.

Saudi UN Ambassador Mouallimi said his country's severing of ties with Iran would not affect its efforts to secure peace in Syria and Yemen. "We will attend the next Syria talks and we're not going to boycott them because of Iran or anybody else for that matter," he told reporters at the United Nations. – Reuters