"The American decision has no legal basis," said a statement from the EDBI, adding that "this is an attempt to distract attention from the economic crisis" in the United States.

The bank said its activities had always been conducted within the framework of international law.

The sanctions mean that any assets held by the bank under US jurisdiction are frozen and that US citizens are barred from dealing with the institution.

"Iran has adopted a strategy of using less prominent institutions, such as the Export Development Bank of Iran, to handle its illicit transactions," the treasury's under secretary for terrorism and financial intelligence, Stuart Levey, said in a statement on Wednesday.

Sanctions will also affect three companies controlled by EDBI -- EDBI Stock Brokerage Co and EDBI Exchange Co, based in Tehran, and the Caracas-based Banco Internacional de Desarrollo.

The US accuses Iran of using its nuclear programme as a cover to build nuclear arms. But Tehran insists that the project is strictly peaceful and solely aimed at generating electricity.

EDBI was established in 1991 with the objective of increasing Iran's exports and developing trade, according to its website.

The US Treasury said EDBI was "providing or attempting to provide financial services to Iran's ministry of defence and armed forces logistics."

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