Middle East regional rivals Iran and Saudi Arabia have agreed to renew diplomatic relations, seven years after severing them in a bitter row.

The unexpected announcement came after four days of talks between senior officials from both sides in China.

Saudi Arabia cut ties in January 2016 after demonstrators stormed its embassy in Tehran following Riyadh’s execution of a prominent Shia Muslim cleric.

Tensions between the Sunni and Shia-led neighbours have since often been high.

They see each other as seeking regional dominance and consider each other a threat. They are also aligned with rivals across the Middle East, including in Lebanon, Syria, Iraq – and most overtly in Yemen.

Iran has supported Shia Houthi rebels who forced out the Saudi-backed government in 2014, while Saudi Arabia has led a devastating air campaign against the Houthis since the following year.

Saudi Arabia has also accused Iran of helping the Houthis attack it.

In the most serious incident of its kind, drones and missiles struck major Saudi oil facilities in 2019, causing damage and disruption to production. Saudi Arabia and its US ally blamed Iran for the attack – something Iran denied.

Previous attempts at reconciliation have been unsuccessful, but on Friday Saudi Arabia and Iran said they would reopen embassies in each other’s countries within two months. They will also re-establish trade and security relations.

The announcement was welcomed by other countries in the region, as well as the US, though Washington said it was sceptical that Iran would “meet their obligations”. Israel, which has called for maximum pressure on Iran over its nuclear programme, has not commented.