Defiant Iran pledges to ramp up missile programme, in challenge for Obama

"As long as the United States supports Israel we will expand our missile capabilities," the Revolutionary Guards' second-in-command, Brigadier General Hossein Salami, was quoted as saying by the Fars news agency.

"We don't have enough space to store our missiles. All our depots and underground facilities are full," he said in Friday Prayers in Tehran.

Defence Minister Hossein Dehqan said Iran would boost its missile programme and had never agreed to restrictions on it.

"Iran's missile capabilities have never been the subject of negotiations with the Americans and will never be," he was quoted as saying by Press TV, an Iranian state channel.

The defiant comments are a challenge for the administration of U.S. President Barack Obama as the United States and European Union plan to dismantle nearly all international sanctions against Iran under the breakthrough nuclear agreement reached in July.

Iran has abided by the main terms of the nuclear deal, which require it to give up material that world powers feared could be used to make an atomic weapon and accept other restrictions on its nuclear programme.

But Tehran also test-fired a missile in October, which the United States says would be capable of carrying a nuclear payload and therefore violates a 2010 UN Security Council resolution which is still in place.

Iran does not accept that the U.N. resolution bars it from testing missiles, as long as it has no nuclear weapons to place on them.

The standoff has turned into a diplomatic and political test for both Washington and Tehran, even as the lifting of sanctions under the nuclear deal draws closer.

Early in the new year, the United States and European Union are expected to unfreeze billions of dollars of Iranian assets, allow Iranian firms access to the international financial system and end bans that have crippled Iran's oil exports.

The deal was a risky diplomatic achievement for both Obama and Iran's President Hassan Rouhani, leaders of countries that have been enemies for nearly 40 years. Both men are under pressure from hardliners at home to demonstrate that they have not compromised on wider issues.

U.S. officials have said they are permitted to respond to the missile test by imposing fresh sanctions against a list of Iranian individuals and businesses linked to the missile programme.

Any such sanctions would be far narrower than the broad measures scheduled to be lifted under the nuclear deal. But Iran says any new sanctions could torpedo the wider accord.

Republican lawmakers who control both houses of the U.S. Congress see the plans for new sanctions as a test of the Obama administration's resolve.

The Wall Street Journal reported that an announcement of new U.S. sanctions was planned for this week but delayed for an unspecified period without explanation.

Rouhani, a relative moderate elected in 2013, has insisted that the nuclear deal does not include any offer to reduce Iran's missile arsenal. On Thursday he ordered his defence minister to expand Iran's missile programme.

Iran's senior nuclear negotiator Abbas Araqchi said on Thursday Iran's October missile test did not violate the July nuclear accord, known as JCPOA.