"The naval forces of the Islamic Revolutionary Guard Corps believe this military exercise is a clear instance of creating tensions and undermining the stable security of the Persian Gulf," it said in a statement published by Iranian newspapers on Thursday.
"None of the naval vessels participating in this drill are permitted to trespass into Iranian waters and under no circumstances should they approach Iranian territorial waters," it added.
"Any such trespassing will not be considered a harmless aberration."
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Saudi Arabia began live-fire drills in the Gulf on Tuesday, with manoeuvres also taking place in the Sea of Oman and the narrow Strait of Hormuz that links the two -- the primary route for oil exports from the region.
The Guards' naval forces "will take proportionate and immediate action against any kind of movement, attempt or action to disrupt the peace and security of the Persian Gulf, the Strait of Hormuz and the Sea of Oman," the statement added.
Sunni-dominated Saudi Arabia and Shiite Iran -- which lie on opposite sides of the Gulf -- severed diplomatic relations earlier this year and back opposing sides in the civil wars in Syria and Yemen.
In the past, Iran has threatened to block the Strait of Hormuz during periods of tension with Saudi Arabia and its Gulf Arab allies.
In recent months, Washington has repeatedly accused Tehran of dangerous encounters with US naval forces in and around the strategic waterway.