The European Union agreed on Monday to slap an embargo on Iran's oil exports as the West ramped up pressure on Tehran's suspect nuclear drive and urged it to return to the negotiating table.
"This is an important decision. It will be a major strengthening of the sanctions applied on Iran," said British Foreign Secretary William Hague.
"It is absolutely right to do this in view of Iran's continued breach of UN Security Council resolutions and refusal to come to meaningful negotiations on the nuclear programme," he added.
After weeks of tough talks on the timing and terms of a ban on Iranian crude, ambassadors of the 27 EU nations reached a political agreement in early morning meetings held as foreign ministers converged on Brussels for a day of talks.
The ministers, who also agreed to toughen sanctions against Syria, are to formally announce the measures against Tehran later on Monday.
The compromise agreement provides for an immediate ban on importing Iranian crude and a gradual phase-out of existing contracts between now and July 1, diplomats said.
The potential impact on financially stressed nations heavily dependent on Iranian oil, Greece, Spain and Italy, as well as on the global oil market -- where oil prices rose on news of the embargo -- will be reassessed before the July 1 deadline, sources said.
Greece's dependence in particular held up an accord on the embargo as the debt-laden nation relies on Iran for more than a third of its imports and had struck preferential financial terms with Tehran.
Greece initially wanted a transition period of up to a year, and intensive talks have taken place for weeks to find alternative sources.
Iran sells around 20 percent of its crude to EU nations, with Greece, Spain and Italy the top buyers.
"Our sacrifice is really major," said Spain's Foreign Minister Jose Manuel Garcia Margallo, though he reported that alternatives had been found. "We want to show our support to peace and stability," he added.
In the toughest measures yet to reduce Iran's ability to fund a nuclear weapons programme, the EU ministers are set to also target the country's central bank, petrochemicals and gold.
The measures come amid heightened concerns of confrontation following reports by the UN atomic agency, the IAEA, that Tehran is inching ever closer to building a nuclear bomb.
The Pentagon announced that US aircraft carrier USS Abraham Lincoln on Sunday passed through the Strait of Hormuz and is now in the Gulf, after Tehran threatened to close the strategic shipping route.
As the West's reaction to Iran's nuclear programme strengthens, Britain's defence ministry said a British Royal Navy frigate and a French vessel had joined the carrier group to sail through the waterway.
The EU has already frozen the assets of 433 firms and 113 individuals, as well as restricting trade and investment in the oil and gas industries.
Also expected are bans on the sale of gold, diamonds and other precious metals to Iran and any delivery of newly minted coins and notes.
The EU imported some 600,000 barrels of Iranian oil per day in the first 10 months of last year, making it a key market alongside India and China, which has refused to bow to pressure from Washington to dry up Iran's oil revenues.
Iranian oil accounted for 34.2 percent of Greece's total oil imports, 14.9 percent of Spain's and 12.4 percent of Italy's in the first nine months of last year, according to the latest EU statistics.
The bloc therefore has been seeking new suppliers able to match the attractive conditions offered by Tehran. Contacts are under way with Saudi Arabia and hopes are high that Libya can soon increase its production.
Britain, France and Germany had urged a total embargo within three months.
Also under discussion was a request from Italy to allow Iranian companies to continue repaying debts with crude instead of cash.
The freeze on Iran's central bank meanwhile is expected to be partial, 'enabling legitimate trade to go ahead,' and ensuring there are no obstacles to continued payment of outstanding Iranian debts to Europe.
Germany notably has expressed concern over the reimbursement of loans to Iran worth 2.6 billion euros ($3.4 billion) should financial channels be closed.
Meanwhile, global powers involved in negotiations on Iran's nuclear programme are still waiting for a reply to a letter sent to Tehran months ago by EU foreign policy chief Catherine Ashton, her office said on Friday.