ISMAILIA, Egypt - Two Iranian navy vessels were approaching Egypt's Suez Canal on Sunday before making the first passage through the waterway since Iran's 1979 revolution and Israel said it took "a grave view" of Teheran's move.

Egypt's ruling military council, facing its first diplomatic headache since taking power on Feb 11, approved the ships' passage through the waterway which is a vital global trading route and major source of revenues for the Egyptian authorities.

The two vessels, a frigate and a supply ship, are due to enter the canal on Monday. The northbound convoy from the Red Sea to the Mediterranean moves at 6 am (0400 GMT).

"We can see what an unstable region we live in, an area in which Iran is trying to take advantage of the situation that has arisen and broaden its influence by transferring two warships via the Suez Canal," Israeli Prime Minister Benjamin Netanyahu said in public remarks to his cabinet.

"Israel takes a grave view of this Iranian step," he said, adding the Jewish state would need to boost defense spending as a result of Teheran's move and recent regional upheaval.

Israel has also watched with concern the political turmoil in Egypt, which led to the resignation of President Hosni Mubarak. Although Mubarak's government often criticized Israel, it had been a committed partner to Egypt's 1979 peace treaty.

Suez Canal officials said the Iranian ships would pass through the canal on Monday and were due to arrive at the southern entrance of the waterway in the Gulf of Suez later on Sunday.

The canal officials denied a report on Iran's Arabic language state television channel Al Alam TV that said earlier on Sunday that the ships had already passed through the Canal.

The request was a difficult one for Egypt's interim government. Cairo is an ally of the United States and its relations with Iran have been strained for more than three decades.

Last week, the prospect of the Suez crossing was described by Israel's far-right foreign minister, Avigdor Lieberman, as a provocation by Iran.

Reuters