Iran said on Monday it had successfully test fired a long-range missile during its naval exercise in the Gulf, flexing its military muscle to show it could hit Israel and U.S. bases in the region if attacked.
The announcement came amid rising tension over Iran's disputed nuclear program which Western powers believe is working on developing atomic bombs.
Iran denies the accusation and last week said it would stop the flow of oil through the Strait of Hormuz if the West carried out threats to impose sanctions on its oil exports.
"We have test fired a long-range shore-to-sea missile called Qader (capable), which managed to successfully destroy predetermined targets in the Gulf," deputy Navy Commander Mahmoud Mousavi told the official news agency IRNA.
Iran earlier said it would test fire two long-range missiles on Monday - Qader and another system called Nour (light) - to display its resolve to counter any attack by enemies such as Israel or the United States.
Mousavi said observers from the country's closest Arab ally, Syria, would attend the last day of its 10-day naval exercise.
The European Union is considering a ban - already in place by the United States - on imports of Iranian crude.
The U.S. Fifth Fleet reacted to Iran's threat to stop oil flows, saying it will not allow any disruption of traffic in the Gulf.
The United States and Israel have not ruled out military action against Iran if diplomacy fails to resolve the Islamic state's nuclear row with the West.
Iran said it had no intention to close the Strait of Hormuz.
"No order has been given for the closure of the Strait of Hormuz. But we are prepared for various scenarios," state television quoted navy chief Habibollah Sayyari as saying.