Kuwait says it has called on Iran to reduce the number of its diplomats stationed in the Persian Gulf state and close down some of its offices, including its cultural mission.
An unnamed government source told the AFP news agency that about 15 Iranian diplomats were being expelled.
Kuwait also ordered the closure of the Iranian "military, cultural and trade" missions, the official said.
The move comes following a court ruling last year regarding a terrorist cell that authorities allege had contacts with Iran and the Lebanese Shi'ite militant group Hizballah.
State Minister for Cabinet Affairs Sheikh Mohammad Abdullah Al-Sabah, who is also acting information minister, confirmed Kuwait had taken diplomatic action against Iran.
"Following the supreme court ruling on the case... the government of Kuwait has decided to take measures, in accordance with diplomatic norms and the Vienna Convention, towards its relations with the Islamic Republic of Iran," Sheikh Mohammad told AFP.
The official News Agency Kuna said Kuwait also decided to freeze any activities involving joint committees between the two countries following the ruling by Kuwait's top court in the case.
There was no immediate reaction from Iranian authorities.
Kuwait's decision to expel Iranian diplomats comes at a time of increased tensions in the region.