The United States has moved to cut off all Iranian transactions routed through US banks to further tighten sanctions over the Islamic state's nuclear and other illicit activities, the US Treasury Department announced Thursday.

Iranian banks and other institutions could previously send transactions through US banks as long as they were initiated by a non-Iranian or American bank outside the US and ended in a non- Iranian or American bank outside the US.

That practice, known as "U-Turn" transactions, has been banned in attempt to further isolate Iran's financial sector, said Stuart Levey, an undersecretary in the Treasury Department.

"With today's action, Iran's potential to manipulate US financial institutions has been significantly curtailed," Levey said.

The US has sought to increase pressure on Iran by cutting it off from the global economy, and curb Iran's ability to use the international finance system to fund its alleged activities to acquire nuclear weapons capability, develop missiles and support terrorism.

Levey said in recent years banks in Europe and other countries have also been taking steps in the wake of limited UN Security Council sanctions to punish Tehran for refusing to halt uranium enrichment.

"Back in September of 2006, I could count on one hand the major banks that had cut off or dramatically reduced their business with Iran. Now there are only a few that have not done so," Levey said.