Defense Secretary Robert Gates said initial reports suggested the test launch announced by Iran was a success and that the missile had a range of at least 2,000 kilometers (1,200 miles).

"The information that I have read indicates that it was a successful flight test," Gates told a congressional hearing when asked about the launch.

Gates added it was unclear if the missile had hit its intended target as claimed by Iran.

The White House said President Barack Obama had "continued concern" about both Iran's ballistic missile efforts and its nuclear ambitions.

Obama was concerned "about Iran's missile development programs, its pursuit of nuclear weapons capability and technology," White House spokesman Robert Gibbs said.

The US president held "the strong belief that the pursuit of those programs do not strengthen the security of Iran but instead make them less safe," he said.

President Mahmoud Ahmadinejad announced earlier that Iran had carried out a successful test of a new two-stage, medium-range missile, drawing a warning from Israel that Europe too should now worry about the Islamic republic's ballistic program.

Ahmadinejad made the announcement in the northern city of Semnan, which lies close to the launch site.

"It is too early to determine if this represents any new capability," a US defense official, who spoke on condition of anonymity, told AFP.

The Iranian president said a Sejil-2 missile had reached its intended target, without specifying the range of the missile.

In Washington, Gates said officials believed the missile had a range of 2,000 to 2,500 kilometers but that due to engine problems it was probably closer to the "lower end of that range."

The White House stood by the administration's attempts to open diplomatic dialogue with Iran despite the missile test and said the approach was supported by Israeli Prime Minister Benjamin Netanyahu during his talks with Obama this week.

"The president and the prime minister both agreed on Monday that engaging the people and the leaders of the Islamic Republic of Iran, something that hasn't been tried for the past many years, is something that makes sense," Gibbs said.

Netanyahu has said Iran's missile technology and nuclear program pose a threat to the Jewish state greater than any it has faced since its creation in 1948.

Iran insists that its nuclear project, including uranium enrichment work, is designed only to generate electricity for a growing population.

Michele Flournoy, US undersecretary of defence for policy, told reporters in Washington that Tehran's ballistic missile effort "is of great concern to us, particularly because of their interest in things nuclear."

She said Iran faced a stark choice -- to abandon its disputed nuclear program or else come under further international isolation.

Flournoy said if Iran rejected its support of militant groups and rejected nuclear weapons, "they could actually be on a path that would do a lot more for their ultimate security in terms of being integrated into the region, having normal relations with others, being recognized as a culture with a great history, a regional power that deserves prestige and respect, et cetera."

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