Prime Minister David Cameron is to hold bilateral talks with Iranian President Hassan Rohani on the Iraqi situation and Isis, on the sidelines of the UN General Assembly in New York.
This will be the first such face-to-face encounter between the leaders of the two countries ever since the 1979 revolution, signalling a sharp improvement in bilateral relations.
Downing Street said the talks are part of the ongoing anti-Isis campaign to defeat the militant group in Syria and Iraq.
Though the US and Iran have agreed that Isis should be routed, both remain wary of any military cooperation.
Iran was not allowed to participate in the Paris talks, where the anti-Isis coalition which includes several Arab states, took shape.
A No 10 source told the Guardian: "We are under no illusion about the dangers of Iran's nuclear programme and our approach on that is not changing.
"However, if Iran is willing to join the international community to defeat Isis then we will work with them on that, but will be clear you cannot take one approach in Baghdad and another in Damascus. You need a political solution in both if you are serious about defeating Isis."
There were reports earlier which suggested that Iran was willing to cooperate more in the anti-Isis campaign in return for concessions over its nuclear programme.
The Cameron-Rohani meeting is also bound to cause unease to Israel and the Gulf states, which are critical of Iran.
Foreign Secretary Philip Hammond also held talks with his Iranian counterpart Mohammed Javad Zarif in New York in which the British leader is said to have raised issues of human rights and Iran's nuclear ambitions.