Tehran would be hit with the "strongest sanctions in history," US Secretary of State Mike Pompeo warned, toeing an aggressive policy and cautioned European companies against continuing to do business with it.
The United States is toughening up its policy after its withdrawal from the Iran nuclear deal.
"We will apply unprecedented financial pressure on the Iranian regime. The leaders in Tehran will have no doubt about our seriousness," Pompeo said, addressing the conservative Heritage Foundation think tank.
This is his first major foreign policy address since moving to the State Department from the CIA.
Pompeo, the "longtime Iran hawk and ardent opponent of the 2015 nuclear pact" outlined an aggressive series of moves designed to counter Tehran, terming it the world's top sponsor of terror.
Iranian President Hassan Rouhani, however, dismissed the threats.
"This sting of sanctions will be painful if the regime does not change its course from the unacceptable and unproductive path it has chosen to one that rejoins the league of nations... Who are you to decide for Iran and the world?" Rouhani said in a statement carried by various Iranian news agencies.
Rouhani said that the rest of the world no longer accepts Washington making decisions on their behalf.
"The world today does not accept that the United States decides for the world. Countries have their independence," he said.
If Iran were to abide by stricter terms, including its interventions in regional conflicts from Yemen to Syria, Washington would lift its new sanctions, Pompeo said.
The 2015 deal with Iran -- also signed by Britain, China, France, Germany and Russia -- did not go far enough, US President Donald Trump said. The deal was designed to prevent Iran from developing a nuclear weapon. He now wants the Europeans and others to support his hardline strategy.
The international community, including top US officials, have said Tehran had been in compliance. But Trump despised the deal, pointing to other aspects of Iranian behavior not covered in the pact, and on May 8 he pulled the US out despite intense diplomatic lobbying by European allies who had beseeched him to stick with it by adding tougher elements.
Following it, Pompeo outlined 12 tough conditions from Washington for any "new deal" with Tehran to make sure it "will never again have carte blanche to dominate the Middle East."
These essentially address every aspect of Iran's missile program and what the US calls its "malign influence" across the region, including support for Syrian President Bashar al-Assad, Hezbollah and Huthi rebels in Yemen.
"It must cease its threatening behavior against its neighbors," Pompeo said.
Rouhani likens Pompeo's comments to those made by the Bush administration ahead of the 2003 Iraq invasion.
"The era of such statements has evolved and the Iranian people have heard these statements hundreds of times, and no longer pay attention," Rouhani added.
Meanwhile, Israel's Prime Minister Benjamin Netanyahu supported Pompeo's speech and urged the rest of the world to follow suit.
"The US policy is correct. Iran is spreading aggressively throughout the Middle East. It aspires to achieve nuclear weapons by various means," Netanyahu said.
(With AFP/PTI inputs)