TEHRAN, Iran — Iran began ground military exercises Saturday and defiantly warned that it could cut off oil exports to "hostile" European nations as tensions rise over suggestions that military strikes are an increasing possibility if sanctions fail to rein in the Islamic Republic's nuclear program.

Tehran has stepped up its rhetoric as international pressure mounts over allegations that it is seeking to develop atomic weapons, a charge it denies.

Iran's Supreme Leader Ayatollah Ali Khamenei has issued stern warnings against any possible U.S. or Israeli attacks against Tehran's nuclear facilities. Western forces also have boosted their naval presence in the Gulf led by the American aircraft carrier USS Abraham Lincoln.

The new military manoeuvrs came weeks after Iran rolled out its troops and arsenals in an unprecedented display of military readiness, with 10 days of naval manoeuvrs that included the first threats to block Gulf oil tankers in early January. Ground forces also were sent on winter war games -- against what a Tehran military spokesman called a "hypothetical enemy" -- with U.S. forces just over the border in Afghanistan.

Plans for new Iranian naval games in the Persian Gulf off the country's southern coast have been in the works for weeks.

Iranian state media reported the ground manoeuvrs of the elite Revolutionary Guard started Saturday near Jiroft, 745 miles (1,200 kilometres) south of the capital Tehran. No more details were available, but it appeared that they were small-scale exercises and not linked to the planned major naval manoeuvrs near the Strait of Hormuz, the route for one-fifth of the world's crude oil.

Iranian officials and lawmakers repeatedly have threatened to close the strait, which funnels down to a waterway no wider than 30 miles (50 kilometres) at the mouth of the Gulf, in retaliation for sanctions that affect Iran's oil exports. But they have as yet made no attempts to disrupt shipping through the waterway, and the U.S. and other Western powers have warned they would respond swiftly to any attempts at a blockade.

Washington and its allies fear Iran could use its uranium enrichment labs -- which make nuclear fuel -- to eventually produce weapons-grade material. Tehran insists it only seeks reactors for energy and medical research.

So far, the West is relying primarily on the threat of economic sanctions to pressure Iran over its nuclear program.

Tehran has claimed that the most recent move -- EU sanctions approved on Jan. 23, which include an oil embargo and the freezing of central bank assets -- will be ineffective, while members of Iran's parliament say they have drafted a bill which would cut off the flow to Europe early, before it can find alternative suppliers.

Iran's Oil Minister Rostam Qassemi also said Saturday the Islamic Republic would "definitely" cut off oil to "hostile" European countries, without specifying which ones they were.

However, he said Iran is moving toward reducing reliance on oil revenues, a hint that Tehran is preparing for the worst. Oil sales account for about 80 per cent of Iran's foreign revenues.

Qassemi, the oil minister, reiterated Iran's argument that the EU oil embargo will not cripple Iran's economy, claiming that the country already has identified new customers to replace the loss in European sales that accounted for about 18 per cent of Iran's exports.

"We've made the necessary planning to deal with that. We have friends in the world and will assist each other," he said. "We won't back down a single step under political pressures and won't give up our right position even if we can't sell a single barrel of oil."

In contrast, he said, the ban would rebound on oil consumers.

"If Iran's oil is totally deleted from the market, then a terrible tension will be created. The costs will be intolerable. The option of imposing a total ban on Iran's crude exports is unenforceable," he said.

Qassemi also reinforced Iran's warning to Saudi Arabia and other fellow OPEC members against boosting production to offset any potential drop in Tehran's crude exports, saying the cartel should not be used as a political weapon against a member state.

Israel, for its part, has so far publicly backed the efforts by the U.S. and European Union for tougher sanctions that target Iran's oil exports. But Israeli leaders have urged even harsher measures and warn that military action remains a clear option despite Western appeals to allow time for the economic pressures and isolation to bear down on Iran.

Khamenei, in a nationally broadcast speech on Friday, staked out a hard line after suggestions by Israel that military strikes are an increasing possibility if sanctions fail to rein in Iran's nuclear program.

He pledged to aid any nation or group that challenges Israel and said any military strikes would damage U.S. interests in the Middle East "10 times" more than they would hurt Iran. The comments also may signal that Tehran's proxy forces -- led by Lebanon's Islamic militant group Hezbollah -- could be given the green light to revive attacks on Israel as the showdown between the rivals intensifies.