Iran has offered a stop-gap plan for oil supplies to India for January, an Indian government source said on Tuesday, but a lasting solution to the row over how to pay for future supplies may take weeks.

India's central bank said last week payments to Iran could no longer be done through a longstanding clearinghouse system run by central banks, prompting fears India's $12 billion annual oil imports from Iran could be threatened.

Iran is India's second biggest crude oil supplier after Saudi Arabia, accounting for about 13 per cent of its total crude oil imports.

The Indian move came within weeks of US President Barack Obama visiting New Delhi. Washington praised the move, saying it would reduce what it sees is a misuse of funds by Iran to support its nuclear activity, which the West suspects has military aims.

Iranian central bank officials rushed to Mumbai but so far talks have failed to agree on a new payment mechanism that also boosts the transparency of their deals, as sought by the United States.

Iran has suggested Indian firms open an account in the Iranian Frankfurt-based EIH bank. But the companies have asked India's state-run State Bank of India to open an account in EIH to transfer money into the central bank of  Iran, which in turn will pay it into NIOC account, the Indian source said.

'We have got the letter this morning from NIOC (National  Iranian Oil Company),' the source said.

'It says pending a full resolution of the issue at hand, which is at central banks' level, for January, I am offering you a dispensation, which is to open a euro account in EIH Bank (an Iran-owned bank based in Germany) in which central bank of Iran has an account.'

The source said Indian officials will visit Iran in mid-January to work out a long-term solution at the central bank level for oil payments.

If the impasse lingers it would potentially hit Indian imports of 400,000 bpd of Iranian crude oil, forcing Asia's third-largest economy to look for more expensive alternatives that would swell its already high  current account deficit.

New Delhi also fears rival China would step in and buy Iranian crude that is now shipped to India.

Although United Nations sanctions do not forbid buying  Iranian oil, the United States has pressed hard for  governments and companies to stop dealing with Tehran. Many oil majors and banks have abandoned their dealings since then.

India will need to strike a delicate balance between its energy needs and global diplomatic interests to solve the dispute.

Iran's Foreign Ministry spokesman Ramin Mehmanparast said in Tehran: 'The issue which was raised over the payment of oil trade between Iran and India is more about technical issues.

'Our Central Bank officials had very good discussions with Indian officials. We hope the issue resolves soon. Both  parties have expressed hope to resolve this problem swiftly  and we hope it does not harm our trade ties with India.'

The US Treasury Department in September sanctioned EIH for facilitating billions of dollars of transactions with Iranian banks that the United States and European Union have blacklisted for aiding Iran's nuclear or missile programs.-Reuters