A senior adviser to Israeli Prime Minister Benjamin Netanyahu resigned on Sunday after reports of a high-level dispute over whether he would be named the Jewish state's next ambassador to Britain.

Uzi Arad, a former Mossad agent and ex-leader of a prestigious Israeli think-tank on foreign policy, asked to step down as national security adviser, "so that he could return to academia," a statement from Netanyahu's bureau said.

Netanyahu has also offered Arad the possibility of a diplomatic posting abroad, said the statement, adding that Arad would stay in place just until a successor was chosen. Two reservist generals were said to be vying for the post.

Israeli media have reported Netanyahu was at odds with Foreign Minister Avigdor Lieberman over the proposed naming of Arad, a veteran Netanyahu ally, as Israel's next ambassador to Britain, replacing Ron Prosor who transferred to the United Nations earlier this month.

Lieberman, an ultranationalist, was said to favour other candidates for the London post.

Arad, known for his outspoken right-wing views on security issues, has been a strong proponent of a Western-backed campaign to curb Iran's nuclear project, which Israel sees as destined to produce atomic weapons that could threaten its existence.