Britain is severing links with Iranian banks because of evidence that they are involved in the development of a nuclear weapons programme, Chancellor of the Exchequer George Osborne said Monday.
"The UK government has just announced new financial sanctions against Iran. We are ceasing all contact between the UK financial system and the Iranian banking system," Osborne said.
"We're doing this because of international evidence that Iran's banks are involved in the development of Iran's... military nuclear weapon programme."
The evidence was in a report from the UN nuclear watchdog which last week came the closest yet to accusing Iran outright of seeking to develop nuclear weapons, he said.
The Treasury said it was the first time London had cut all of a country's banks off from the British financial sector, and the Central Bank of Iran was also be included.
The United States said it would follow Britain later Monday with new restrictions on Iran, expected to target the financial, oil and petrochemical sectors.
The moves appeared to be part of coordinated efforts by Western governments to isolate Tehran, which has already been hit by four sets of UN sanctions as well as European Union and US restrictions.
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Osborne added in a statement: "We believe that the Iranian regime's actions pose a significant threat to the UK's national security and the international community.
"Today's announcement is a further step to preventing the Iranian regime from acquiring nuclear weapons."
Iran denies Western claims it is developing nuclear weapons.
The Treasury in London said that Iranian banks play a crucial role in providing financial services to individuals and entities within Iran's nuclear programme.
"All UK credit and financial institutions are required to cease business relationships and transactions with all Iranian banks, including the Central Bank of Iran, and their branches and subsidiaries," said a ministry statement.
By cutting Iranian banks off from the major finance hub of London, it would be more difficult for them to use the international financial system to support its nuclear programme, it said.
The move would also "protect the UK financial sector from being unknowingly used by Iranian banks for proliferation related transactions," it added.
Some experts have cautioned that targeting the Central Bank could have a profound impact on Iran's economy and global energy prices.
Iran stayed away Monday from a UN atomic agency forum on creating a Middle East free of nuclear weapons, with its ambassador to the Vienna-based body, Ali Asghar Soltanieh, attacking last week's report as "inappropriate."