Britain has withdrawn a threat to enter Ecuador's embassy in London to arrest WikiLeaks founder Julian Assange who has taken refuge there, President Rafael Correa said on Sunday, taking some of the heat out of the diplomatic standoff.

Speaking at a press conference on Sunday, Mr Correa said: "We consider this unfortunate incident over, after a grave diplomatic error by the British in which they said they would enter our embassy."

In a statement, Ecuador's government said it had received "a communication from the British Foreign Office which said that there was no threat to enter the embassy".

Ecuador was furious after the British government warned that it might try to seize Assange, who has been holed up in the building for more than two months.

Ecuador, which has granted Assange asylum, demanded that Britain's threat be retracted. The latest move should improve relations between Quito and London and allow more talks on Assange's fate to take place.

The Washington-based Organisation of American States had condemned Britain's threat, and South American foreign ministers strongly backed Correa's position that Britain's warning was unacceptable and could set a dangerous precedent.

Correa says he shares Assange's fears that if handed over to Sweden, he could then be extradited to the United States to face charges over WikiLeaks' 2010 publication of secret US cables.