Uranium enrichment lies at the focus of fears over Tehran's nuclear ambitions, as the process can make the fissile core of an atom bomb as well as nuclear fuel.

Elham said that Iran would press ahead with its nuclear fuel cycle work despite the sanctions.

"This sanction does not affect our national will to complete the fuel cycle in order to meet industrial needs and the development of the country, which has started and will continue," he said.

Iranian foreign ministry spokesman Mohammad Ali Hosseini described the EU move for applying the sanctions as "irrational" and advised the EU to distance itself from the United States.

"It is deplorable that the European Union bases its certain irrational decisions on the unjust and unlawful resolution 1737.

"The European Union should not link its vital interests in the region with America's provocative approaches," he said in a statement.

In a new show of defiance Iran said on Monday it would block 38 International Atomic Energy Agency (IAEA) inspectors from entering the country in reprisal for the sanctions.

The Vienna-based IAEA said it was discussing the issue with Iran, but added that it could continue monitoring its nuclear facilities even without the presence of inspectors.

Iran's top nuclear negotiator Ali Larijani insisted on Tuesday that "nothing especial has happened in our relations with the IAEA and our cooperation continues under the Non-Proliferation Treaty."

On December 23, the UN Security Council passed resolution 1737 imposing sanctions on Iran banning transfer of material and technology to its nuclear and missile programmes over its refusal to suspend uranium enrichment.

Oil-rich Iran says it only wants to enrich uranium for peaceful energy ends, vehemently denying charges that it seeks to secretly develop nuclear weapons.

Iran's elite Revolutionary Guards meanwhile Tuesday fired off a number of short-range missiles during military exercises but played down the importance of the event, saying the weapons had been test-fired before.

The tests come just days after Larijani said the armed forces were ready to face any threat to its nuclear installations amid speculation Washington may be planning a military strike.

Zelzal missiles, which have a range of about 100 to 400 kilometres (60 to 250 miles), and Fajr 5, which can hit a target 70 kilometres (44 miles) away, were tested in war games held 140 kilometres (90 miles) southeast of the capital Tehran.

"Although it is a limited war game, Western and some regional media, which are politically-motivated, exaggerated the dimensions of this specialist exercise," a statement by the Revolutionary Guards said, carried by the ISNA news agency.

Iran has conducted a series of war games in the past year in its southern Gulf waters, showing off a wide range of home-grown military equipment and missiles.

A top US official warned on Tuesday that Washington will not allow Iran to "control" the oil-rich Gulf as a second US aircraft carrier battle group steamed towards Gulf waters.

Undersecretary of State Nicholas Burns said the United States was "not seeking a war" with Tehran and wanted a diplomatic solution to the standoff over the Iranian nuclear programme.

But he ruled out negotiations with Iran unless it met the "international community request" to suspend uranium enrichment work.

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