Two Iranian naval ships have entered the Suez Canal and are heading towards the Mediterranean, a canal official said.
Iranian President Mahmoud Ahmadinejad has been subject of recent protests
The move by Iran appears to be a test of the state of affairs in the Middle East, coming just over a week after the fall of Egyptian President Hosni Mubarak.
Israel had said it takes a "grave view" of the passage of the ships, which would be the first naval vessels to go through the canal since Iran's 1979 Islamic revolution.
"They entered the canal at 5.45am," the canal official told news agency Reuters.
Egypt's ruling military council, facing its first diplomatic headache since taking power on February 11th, has approved the vessels' passage through the canal.
The Suez Canal is a vital global trading route and major source of revenues for the Egyptian authorities.
The vessels include a frigate and a supply ship.
Egypt's interim government faced a difficult decision. Cairo is an ally of the United States and has a peace treaty with Israel.
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.