The station is part of a 1 billion pound ($1.56 billion) global eavesdropping project run by Britain to intercept digital communications, the newspaper said, citing leaked documents from former US National Security Agency contractor Edward Snowden.
Snowden's leaks have sparked a global surveillance scandal that has pitted US President Barack Obama against the Kremlin and prompted British Prime Minister David Cameron's advisers to demand the return of secrets from the Guardian newspaper.
The London-based Independent, which did not say how it got access to the information from the Snowden documents, said the British had tapped into the underwater fiber-optic cables which pass through the Middle East.
Data gleaned from the monitoring station, whose exact location the Independent said it would not reveal, is then passed onto Britain's eavesdropping agency (GCHQ) in Cheltenham, England, and shared with the US National Security Agency.
Western intelligence agencies rushed to improve their monitoring of Middle East traffic after the attacks on the United States on September 11, 2001.
Britain's monitoring station in the Middle East was set up under former Foreign Secretary David Miliband, who served in that post between 2007 and 2010, the Independent said.
Britain's foreign ministry declined comment.
Snowden's leaks have embarrassed both Britain and the United States by laying bare the extent of their surveillance programs.
London and Washington say their spies operate within the law and that the leaks have damaged national security.
SHI/SHI