Britain has kicked out an Israeli diplomat over the "intolerable" use of fake British passports in the killing of a Hamas chief, in a sharp escalation of tension over the murder.

Israel, which had hoped a row over the use of forged passports in the killing of a top Hamas militant in Dubai was over, now fears other countries will follow Britain's lead in expelling diplomats.

Australia, France, Germany and Ireland are all investigating the suspected theft of the identities of their nationals in the January murder of Hamas commander Mahmud al-Mabhuh and have yet to announce their conclusions.

Britain was unequivocal about its own findings on Tuesday as it announced the expulsion of an Israeli diplomat from London.

"There are compelling reasons to believe that Israel was responsible for the misuse of the British passports," Foreign Secretary David Miliband told parliament.

"Given that this was a very sophisticated operation in which high-quality forgeries were made, the government judges it is highly likely that the forgeries were made by a state intelligence service," Miliband said.

"The government takes this matter extremely seriously. Such misuse of British passports is intolerable.

"I've asked that a member of the embassy of Israel be withdrawn from the UK as a result of this affair and this is taking place."

Miliband declined to identify the diplomat who was being expelled but British and Israeli media said he worked for Israel's Mossad intelligence agency, which has been widely accused of Mabhuh's murder.

The Times and Telegraph newspapers said he was the agency's London station chief. Israeli public radio said the Mossad would "soon" replace the expelled agent.

Miliband said he met his Israeli counterpart Avigdor Lieberman in Brussels on Monday and asked for a formal pledge that in future "the state of Israel would never be party to the misuse of British passports in such a way."

Lieberman took issue with Britain's findings and said he was "very disappointed" by the diplomat's expulsion, but said he wanted to maintain cordial relations with London.

"No proof of Israeli involvement in this affair has been provided to us," Lieberman said in a statement released late on Tuesday.

With four other governments still poised to announce the findings of their own inquiries, a senior Israeli official said there would be no tit-for-tat expulsion of a British diplomat.

"We have no intention of expelling a British diplomat in response to London's decision," the official told AFP, adding that the priority was to "calm things down."

Israel's Maariv daily said that Israeli officials were concerned about the intelligence and security implications of a widening diplomatic spat.

"Officials in Jerusalem fear that the severe step taken by the UK... will also prompt further countries whose citizens' identities were used in the operation -- Ireland, Australia, Germany and France -- to do the same," the paper said.

"There is further concern that the severe step taken by the British government could negatively impact its security ties with Israel and the particularly close cooperation between the two intelligence organisations -- the Mossad and Britain's MI6."

The Australian government said it would not be rushed into action over the suspected use of forged Australian passports.