European Union foreign ministers have formally adopted an oil embargo against Iran over its nuclear programme.
The sanctions involve an immediate ban on all new oil contracts with Iran, while existing contracts will be honoured until 1 July.
Tehran denies that it is trying to develop nuclear weapons and says talks and not sanctions are the only way to resolve the dispute.
The EU currently buys about 20% of Iran's oil exports.
Meanwhile, the Pentagon said the US aircraft carrier USS Abraham Lincoln, as well as a British Royal Navy frigate and a French warship, have passed through the Straits of Hormuz at the entrance to the Gulf without incident in the wake of Iranian threats to block the trade route.
Under the new deal, EU governments are expected to stop signing new contracts with Iran when the ban comes into place - which could be as soon as this week, Reuters news agency reports.
All existing contracts will have to be phased out by 1 July.
Additional restrictions on Iran's central bank are also expected to be agreed by EU ministers, although no further details have been given.
BBC Europe Editor Gavin Hewitt says it is one of the toughest steps the EU has ever taken.
UK Foreign Secretary William Hague said the embargo showed "the resolve of the European Union on this issue".
"It is absolutely right to do this when Iran is continuing to breach United Nations resolutions and refusing to come to meaningful negotiations on its nuclear programme," he added.
In response to the EU announcement, one senior Iranian politician said Tehran should halt all oil sales to European countries immediately.
Ali Fallahian was quoted by the semi-official Fars news agency as saying that Iran should stop the export of oil before the 1 July deadline "so that the price of oil soars and the Europeans... have trouble".
Russian Foreign Minister Sergei Lavrov reacted to the embargo by saying that such "unilateral sanctions do not help matters" and called for a resumption of talks between Iran and the international community.
Earlier, EU foreign policy chief Catherine Ashton said the aim of the sanctions was to "make sure that Iran takes seriously our request to come to the table".
She said world powers had yet to receive a reply to an offer made to Iran in October to hold new talks.
BBC Iran correspondent James Reynolds says oil is the country's most valuable asset and sales help to keep the Iranian government in money and power.
A decision by the EU to stop buying from Iran may damage the Iranian economy - but in itself it won't destroy it, our correspondent says.
Iran sells most of its oil to countries in Asia. The EU and the United States are now working to persuade Asian countries to reduce their purchases from Iran as well.
Iran has already threatened to retaliate over the sanctions by blocking the Strait of Hormuz at the entrance to the Gulf, through which 20% of the world's oil exports pass.
The US has said it will keep the trade route open, raising the possibility of a confrontation.
Late last year Iran conducted 10 days of military exercises near the Strait of Hormuz, test-firing several missiles.
Oil prices have risen already because of the increasing tension and the expected impact of an EU ban on oil supplies to Europe.