Iran rejected on Saturday as "baseless" the reasons given by the United States for sanctioning a Malaysian-based subsidiary of its second-largest bank, the official Irna news agency reported.

The US Treasury on Thursday sanctioned Iran's state-owned Bank Mellat in Malaysia and its chairman, labelling them as proliferates of weapons of mass destruction.

"America has not provided specific and justifiable reasons for sanctioning Iran's Mellat Bank in Malaysia," said deputy economy minister Asghar Abolhasani, Irna reported.

The US Treasury said it named First East Export Bank, a Bank Mellat subsidiary located in Malaysia, and Bank of Mellat's chairman, Ali Divandari, for acting on behalf of Bank Mellat.

The move freezes assets and bans Americans from doing business with them. The US has previously targeted Bank Mellat, along with other Iranian state banks, with sanctions because of concerns they were involved in helping to develop nuclear weapons.

Abolhasani said accusing Bank Mellat of being involved in the Islamic state's nuclear programme was "merely a pretext".

"Based on rules and regulations of the United Nations, any bank can invest in peaceful nuclear energy," Abolhasani said.

Washington and its European allies fear Iran is trying to build nuclear weapons under cover of a civilian programme.

Iran, the world's fifth-largest crude exporter, has said its nuclear programme is peaceful and aimed at generating electricity so it can export more of its gas and oil.

In the Islamic Republic's first part-privatisation of a bank, a 5 per cent stake in Bank Mellat was sold in February.-Reuters