A British-Iranian mother who has been held in Iran since 2016 has had her British passport returned, raising hopes a negotiating team will be able to secure her full release.

"I am very pleased to say that Nazanin Zaghari-Ratcliffe has been given her British passport back," British deputy Tulip Siddiq said in a tweet on March 15.

"She is still at her family home in Tehran. I also understand that there is a British negotiating team in Tehran right now," Siddiq added.

Zaghari-Ratcliffe was taking the couple's 7-year-old daughter Gabriella to see her family when she was arrested and sentenced to five years in jail, spending four years in Tehran's notorious Evin prison and one under house arrest.

Her family says Zaghari-Ratcliffe was told by the Iranian authorities that she was being detained because of Britain's failure to pay an outstanding $458 million debt to Iran.

Iranian officials have said that Britain told Tehran it could not pay the debt because of sanctions against Iran.