US hits Iran with toughest penalties since 1979 siege

The Bush administration has moved a step closer to military conflict with Iran, imposing punitive measures on its Revolutionary Guard Corps and calling the al-Quds unit of the guards a terrorist organisation.

Vladimir Putin immediately called the new US sanctions the work of a " madman with a razor blade in his hand". The Russian President said: "Why worsen the situation by threatening sanctions and bring it to a dead end?"

The Guards' chief, General Mohammad Ali Jafari, said: "Today, enemy has concentrated sharp point of its attacks on the Guards. As always, the corps is ready to defend the ideals of the revolution more than ever before."

The sanctions are the toughest measures against Tehran since the siege of the US embassy 1979 under the presidency of Jimmy Carter. The US has never before in its history taken such measures against the armed forces of an independent government.

US Secretary of State, Condoleezza Rice, announced the new measures, saying they were meant "to confront the threatening behaviour of the Iranians".

The US was forced to act alone, however, with Britain only offering rhetorical support for unilateral action outside the United Nations Security Council. A plan to have gradually tightening UN sanctions is foundering following opposition from Russia and China.

The European Union remains deeply divided on the way forward with Germany opposed to more sanctions at this stage. It has a huge economic stake in Iran with which it had exports worth $5.7bn (£2.8bn) last year.

There was sharp criticism in the US as well. The foreign affairs commentator Anthony Cordesman said: "The Bush Administration has already done immense damage to US credibility throughout the region and much of the world. The administration ... is viewed as threatening to drag the Gulf into another war – this time with Iran, as failing to consult and explain, and as indifferent to the views of its friends and allies."

The Bush administration is making its strongest bid yet to brand Iran as a rogue regime already on a war footing, and causing trouble in Iraq, Lebanon, Afghanistan as well as the Palestinian territories with a military-controlled bureaucracy that is spreading terrorism and acquiring weapons of mass destruction.

But critics say it is once again distorting the facts as it prepares US and international public opinion for military strikes on Iran, either by US forces or by Israel.

Washington justified the new sanctions by accusing the elite Quds division of the Revolutionary Guard Corps of the devastating campaign of roadside bombs by Shia militias against its troops in Iraq. Attempts to declare the entire Revolutionary Guard, a branch of the Iranian defence forces, a foreign terrorist organisation were shelved following European opposition. But the administration accuses the Corps of being at the heart of Iran's drive to acquire weapons of mass destruction.

Ms Rice said that while Washington was still open to a diplomatic solution, "unfortunately the Iranian government continues to spurn our offer of open negotiations, instead threatening peace and security by pursuing nuclear technologies that can lead to a nuclear weapon, building dangerous ballistic missiles, supporting Shia militants in Iraq and terrorists in Iraq, Afghanistan, Lebanon and the Palestinian territories, and denying the existence of a fellow member of the United Nations, threatening to wipe Israel off the map."

The sanctions may represent a final attempt by the administration to stop Iran's drive to develop nuclear power and the ability to create weapons and reflect the growing frustration at the failure of the UN Security Council to control Iran.

The sweeping new US sanctions affect Iranian banks, companies, officials and government agencies which the White House says are either part of the country's push to acquire weapons of mass destruction or supporting acts of terrorism abroad. The sanctions specifically targeted Revolutionary Guards Corps finances and eight affiliated companies. They also named five Revolutionary Guards officials as well as the Quds Force. Washington says that this elite unit of the Guards backs the Taliban and is trying illegally to acquire weapons of mass destruction and missile technology. The US also struck at Iran's Defence Ministry and two additional state-run banks.

One of these, Bank Melli, has branches all over the world including Britain. The US says it is a supporter of terrorist groups in Afghanistan, Iraq and across the Middle East. The US hopes to cripple Iranian trade by isolating the banks from the world financial system.