Western powers want Iran to suspend uranium enrichment, a process that they fear could be used to make nuclear weapons. Iran insists its atomic programme is entirely peaceful and it has every right to the nuclear fuel cycle.

The UN Security Council last month imposed sanctions and asked International Atomic Energy Agency chief Mohamed ElBaradei to report within 60 days on whether Iran has suspended uranium enrichment and cooperated fully with an ongoing IAEA investigation.

"The plan is to use the language of the (UN) resolution to help persuade foreign governments and financial institutions to cut ties with Iranian businesses, individuals in its nuclear and missile programs and, by extension, the Iranian Revolutionary Guard Corps," the report said, quoting Stuart Levey, under secretary of the treasury for terrorism and financial intelligence.

The Times said the US initiative is backed by Britain and France but that Germany was believed to have concerns.

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