Iran's Bank Mellat has denied US allegations that prompted Washington to slap sanctions on the institution and says it reserves the right to take legal action against the US authorities in response.

The US imposed sanctions last month on Bank Mellat and other Iranian banks and bodies, including Iran's Revolutionary Guards, to counter what it said was Tehran's bid to build an atomic bomb and its support for terrorism.

 Iran, the world's fourth largest oil producer, says its atomic work is to master technology to generate electricity, not make warheads, so that it can save its huge oil and gas resources for export. It denies backing terrorists.

'The recent allegations made by the USA against Bank Mellat (have) absolutely no justification and legal ground, and (are) simply based on illegal and baseless accusations,' the bank said in a statement.

Washington said Bank Mellat and its subsidiaries provided banking services in support of Iran's nuclear activities, including the country's Atomic Energy Organisation.

Under the sanctions, no US citizen is permitted to deal with the bank and any of its assets under US jurisdiction will be frozen.

Washington is pressing for the European Union to take measures against the Islamic Republic and is also pushing for a third round of UN sanctions to be imposed for Iran's refusal to halt atomic work that has both civilian and military uses.

'Bank Mellat strongly insists that its operation is and has always been limited to mere economic activities and there has never been a single example of the involvement of the bank in any illegal activity,' the Iranian bank said. 

 'Ultimately, Bank Mellat reserves its rights, without prejudice to any of its other rights and privileges, to take any legal action against the current US administration and other concerned USA authorities ... for any losses or damages as may be inflicted on the bank ...'     It did not say if it was planning any such action. 

 Iran has brushed off the impact of sanctions but business executives say they are hurting the economy although windfall oil earnings are helping Iran cope with any financial pressure.

Several international banks have stopped US dollar transactions with Iran, and some have even stopped dealings in other currencies. In addition, some foreign banks have closed accounts held by Iranian firms. Reuters