In this paper we study in detail the variability of the symbiotic nova AG Peg in the IUE range during the period 1978-1995. We find that the luminosity of the hot component decreased steadily from about 1850L_{sun}_ in 1978 to 430L_{sun}_ in 1995 while its effective temperature remained nearly constant, 86500+/-1300K. At the same time, the mass loss rate decreased by a factor of 4-5 although the ejection velocity remained constant. The observed fainting of both the narrow and the broad emission lines is ascribed to the decrease of the luminosity and ionizing flux from the hot source. The narrow emission lines and the long wavelength UV continuum show periodic variations arising from a dense and asymmetric nebular region associated with the cool star. Radial velocity variations of the narrow lines indicate that this region is receding from the center of mass of the system, and support the presence of the ablation tail suggested by Penston and Allen (1985MNRAS.212..939P). No periodic flux variations are seen in the short wavelength ultraviolet continuum and in the broad emission lines, which are both formed in the fast wind from the hot component.