The arrests are the latest in a spate of cases in which Israel has charged its own citizens with spying for the country's arch-foe since the start of the war in Gaza in October 2023.
Police and the Shin Bet domestic security agency said that "in a joint operation... Roi Mizrachi and his friend, Almog Attias, both 24, were arrested at the end of April for committing security offences after collecting intelligence in Kfar Ahim", where Defence Minister Israel Katz lives.
The men were acting "on behalf of Iran" and motivated by "financial gain", said the statement from the security agencies.
On Sunday, authorities announced the arrest of an 18-year-old Israeli accused of spying on former prime minister Naftali Bennet, also for Iran.
Other cases uncovered recently included alleged missions ranging from photographing military bases to plotting to kill senior Israeli officials.
Police said most suspects did not have special training and had faced financial difficulties.
Defence Minister Katz said in a statement he would not be "deterred" by attempts to spy on him.
"Iran is... directly advancing terrorist activity and supporting terrorist organisations that act against Israeli leaders and against all citizens of the State of Israel," he said.
"I will not be deterred by any threat and will continue to fulfil my duty to prevent Iran from obtaining nuclear weapons."
The Shin Bet and police said that Mizrachi and Attias were asked to carry out a number of missions near Katz's home.
Mizrachi had purchased a new cellphone and used "a special app" to communicate with his Iranian handlers, the security agencies said in their statement.
The pair were "fully aware they were acting under Iranian direction", the statement added.
Among the tasks Mizrachi had allegedly carried out, the agencies said he moved "a bag buried in the ground from one location to another" thinking that it "contained an explosive device".
Indictments against the two men are expected to be filed in the coming days, the statement said.
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