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Iran’s largest flag factory is selling US, British and Israeli flags to Iranian protesters who go on to burn them at demonstrations, as relations between Tehran and Washington continue to simmer.

A factory situated in the southwest of the capital Tehran, in a town called Khomein produces about 2,000 of the US and Israeli flags per month during its busiest periods, and more than 1.5 million square feet flags a year.

Iran demonstrators regularly burn the flags of Israel, US and Britain.

Ghasem Ghanjani, who owns the Diba Parcham flag factory, said: “We have no problem with the American and British people. We have (a) problem with their governors. We have (a) problem with their presidents, with the wrong policy they have.”

“The people of America and Israel know that we have no problem with them. If people burn the flags of these countries at different rallies, it is only to show their protest.”

Rezaei, a quality control manager, who declined to give her first name, said, “compared to the cowardly actions of the United States, such as General Soleimani’s assassination, this (burning an American flag) is a minimal thing against them. This is the least that can be done.”

Read More: Why Turkey wants to avoid taking sides in the US-Iran standoff

Tension over Trump’s shambolic ‘deal of the century’

Tehran and Washington have been engaged in a dangerous game of tit for tat after US airstrikes killed Iranian commander Qasem Soleimani and tension has gotten worse following Donald Trump’s announcement of a controversial "peace plan" in the Middle East.

Donald Trump's plan has been slated by human rights organisations [Getty]

The US president unveiled a 181-page plan three years in the making which claims to be an “historic opportunity” to for a two-state solution.

Critics of the plan call it a legitimisation of illegal settlements, annexation of large parts of the West Bank and a death cry to a two-state solution.

Iran has condemned US President Donald Trump's Israel-Palestinian peace plan as the "treason of the century".

"The shameful peace plan imposed by America on the Palestinians is the treason of the century and doomed to fail," the foreign ministry said in a statement on Tuesday.

Trump on Tuesday unveiled long-awaited details of his so-called "Deal of the Century" at a White House press conference alongside Israeli Prime Minister Benjamin Netanyahu.

While the peace plan has garnered support from some Western and Gulf allies - including Saudi Arabia, the UAE and the UK - it has been rejected by Palestinians, for whom the proposed annexation of West Bank settlements and the Jordan Valley is unacceptable.

Iranian Foreign Minister Mohammad Javad Zarif said on Twitter that the "so-called 'Vision for Peace' is simply the dream project of a bankruptcy-ridden real estate developer", in reference to Trump.

"But it is a nightmare for the region and the world and, hopefully, a wake-up call for all the Muslims who have been barking up the wrong tree," wrote Zarif.