The spokesman for the week-long maneuvers, Rear Admiral Mohammad Ebrahim Dehqani said on state television the torpedo was "a serious threat for the warships. It can strike the submarines deep in the sea and break them in half."

He added the torpedo, developed by the Islamic republic's elite ideological army, the Revolutionary Guards, "has been developed by domestic experts and has reached mass production."

The maneuvers, which Iran says were planned long before, coincides with a critical phase in the dispute over its nuclear ambitions, which the United States alleges is cover for a weapons program.

Tehran denies the charges and officials said the success of the war games showed that the Islamic republic would never back down in the atomic standoff.

"After weeks of psychological warfare (over the nuclear issue), they (the West) expected that we back down and give up our rights," the head of Iran's Islamist militia, the Basij, General Mohammad Hejazi said on state television.

"Not only we did not do that, but we showed our capabilities by these maneuvers," he boasted.

"The security of the Persian Gulf and Oman Sea is everybody's interest; our economic interests depend on the Persian Gulf as the world energy supply depends on this region," Hejazi said.

But he added that "if the region is not to be safe, the ones responsible for it will pay a high price... The enemies must know they should not be playing with fire."

Iran's hardline President Mahmoud Ahmadinejad said Monday "the Iranian nation and government are determined to use their rights to nuclear technology", the official IRNA news agency reported.

On the maneuvers' first day, Friday, Iran said it had tested a new missile, which can avoid radar and hit several targets simultaneously using multiple warheads.

A high-speed underwater missile capable of destroying large warships and submarines was successfully launched at the weekend.

Dehqani said more missiles would be test-fired within days and that Iranians would have "important news that will make them proud", without specifying what type of missiles would be launched.

"One of the messages of the war games for the enemies is that if they slightly violate the Islamic republic's interests in the Persian Gulf, we will firmly confront them," Dehqani was quoted as saying.

"These maneuvers have worried the American and British forces in the region and they are on alert," he added.

The United States said it was possible that Tehran was making progress in the field of radar absorbing materials but also cautioned against reading too much into the claims.

"It is possible they are increasing their capability in making strides in radar absorbing material and targeting," said Bryan Whitman, a Pentagon spokesman.

"However, the Iranians have been known to boast and exaggerate their statements about greater technical and tactical capabilities," he said.

A vital corridor for the world's oil supplies, the Gulf is where the US Navy's 5th Fleet is based, in the Gulf state of Bahrain.

Iran already has medium-range Shahab-3 missiles with the capability of 2,000 kilometers (1,280 miles), able of hitting arch-enemy Israel and US bases across the Middle East.

US Secretary of State Condoleezza Rice said the United States remained committed to pursuing a diplomatic solution to the Iran nuclear crisis but refused to rule out military action if Iran refuses to bow to international pressure.

The UN Security Council late Wednesday unanimously approved a non-binding statement giving Iran 30 days to abandon sensitive uranium enrichment activities -- which Iran promptly refused to comply with.

Thousands of Iranian troops are conducting the war games, which involve the Revolutionary Guards Corps navy and air force, Iran's regular army and navy, the volunteer Basij militia, and the Iranian police.

They kicked off last Friday and are due to run until Thursday.

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