Kidnappers of the Iranian diplomat Fereydoun Jahani demanded Sunday that Tehran release 500 Iraqis said to be captured during the 1980-1988 war between the two neighbors, the official IRNA news agency reported.

IRNA quoted the Qatar-based al-Jazeera TV channel as saying that the militant group of Islamic Army of Iraq delivered an ultimatum to the Iranian authorities to free 500 Iraqi captives within 48 hours, otherwise they would "punish the diplomat".

The Iranian government has insisted that all of the Iraqis held during the 1980-1988 war have been freed.

Jahani was held hostage by the armed militia on Aug. 4 near the central Iraqi city of Karbala when he was on his way to open a consulate in the city. The kidnappers accused him of provoking sectarian conflicts and spying.

The incident has seriously aggravated relations between Baghdad and Tehran.