US Defence Secretary Robert Gates said the test appeared to have been successful.

After Ahmadinejad made the announcement in the northern city of Semnan, close to the launch site, Italy announced the last-minute cancellation of a visit by Foreign Minister Franco Frattini when it emerged the Iranian president expected to receive him there.

"The defence minister (Mohammad Mostafa Najjar) told me today that we launched a Sejil-2 missile, which is a two-stage missile and it has reached the intended target," Ahmadinejad said in a speech.

"The missile was launched from here in Semnan," he added to cheers.

"I was told that the missile is able to go beyond the atmosphere then come back and hit its target. It works on solid fuel," he said, without specifying the missile's range.

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

"The missile will have a range of approximately 2,000 to 2,500 kilometres (1,200 to 1,500 miles).

"Because of some of the problems they've had with their engines, we think at least at that this stage of the testing, it's probably closer to the lower end of that range."

Gates added it was unclear if the missile had hit its intended target.

Italy's Frattini had been due in Iran later on Wednesday, but his office announced that he would no longer go after the venue for his Ahmadinejad talks was switched to near the missile test site.

Israel said the new test should be of concern to European countries since it meant Iran now had a missile that put them in range too.

"In terms of strategic importance, this new missile test doesn't change anything for us since the Iranians already tested a missile with a range of 1,500 kilometres (nearly 950 miles)," Deputy Foreign Minister Danny Ayalon said.

"But it should worry the Europeans," he said. "The Iranians are also trying to develop a ballistic missile with a range of 10,000 kilometres (6,250 miles) that could reach the coast of the United States."

Iran's defence minister announced on November 12 that Iran had test-fired a new generation of ground-to-ground missile.

"This is a two-stage missile carrying two engines with combined solid fuel," Najjar said at the time, adding that the missile was named Sejil.

He said the new missile had "a range of close to 2,000 kilometres," sufficient to put Israel in range.

Iran has boasted in the past of developing new weapons systems only to be met with scepticism among Western defence analysts.

But hawkish new Israeli Prime Minister Benjamin Netanyahu has said Iran's missile technology and controversial nuclear programme pose a threat to the Jewish state greater than any it has faced since its creation in 1948.

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

Iran insists that its nuclear programme is aimed solely at producing electricity for a growing population.

But Israel -- which has the region's sole if undeclared nuclear arsenal -- suspects it is cover to acquire nuclear weaponry.

The UN Security Council has imposed three packages of sanctions against Iran after it failed to heed ultimatums to suspend uranium enrichment, the process which makes fuel for nuclear power stations but in highly extended form can also produce the fissile core of an atomic bomb.

Ahmadinejad again insisted on Wednesday that Iran would not give in to international pressure over its nuclear ambitions.

"They (Western governments) said if you don't stop, we will adopt (sanctions) resolutions... They thought we would retreat but that will not happen," he said.

"I told them you can adopt 100 sets of sanctions, but nothing will change."

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