America's Justice Department has accused factions of the Iranian government of plotting to kill the Saudi ambassador to the US
Two men have been charged in New York with conspiracy to murder Adel al-Jubeir as part of a major terror attack on US soil.
US authorities named them as Manssor Arbabsiar, 56, who has an Iranian and US passport, and Gholam Shakuri, an Iran-based member of Iran's Quds Force.
They claimed the plot had been "directed by elements of the Iranian government".
Attorney General Eric Holder said: "The criminal complaint... exposes a deadly plot directed by factions of the Iranian government to assassinate a foreign ambassador on US soil with explosives."
He continued: "The complaint alleges that this conspiracy was conceived, was sponsored and directed from Iran and constitutes a flagrant violation of US and international law.
"In addition to holding the individual conspirators accountable for their alleged role in this plot the United States is committed to holding Iran accountable for its actions."
Officials said the plot called for the assassination as part of a wider bomb attack.
FBI Director Robert Mueller says many lives could have been lost.
This would have been just "the opening act" of an attack on US soil, it was claimed.
"We will not let other countries use our soil as their battleground," Preet Bharara, the US attorney in Manhattan, told a news conference in Washington.
The case will further sour relations between the Islamic republic and Washington, which has accused Tehran of backing terrorism and pursuing nuclear arms.
Mr Holder said the US government would be taking action against the Iranian government, although what measures that will involve is still unknown.
The Treasury Department has already imposed economic penalties against four people linked to the alleged plot.
Arbabsiar is alleged to have approached an American official working undercover in Mexico, posing as a member of a drugs cartel.
The undercover official agreed to help with the assassination attempt, using explosives to blow up the ambassador in a restaurant, in return for $1.5m.
The Iranians allegedly wired $100,000 to an account as part-payment before the authorities stepped in.
Arbabsiar allegedly confessed and implicated senior members of the Iranian government after he was arrested at JFK airport. Shakuri is still at large.
US officials said there had also been initial discussions about other alleged plots, including attacking the Saudi and Israeli embassies in Washington.
US Secretary of State Hillary Clinton said: "This really, in the minds of many diplomats and government officials, crosses a line that Iran needs to be held to account for.
"The idea that they would attempt to go to a Mexican drug cartel to solicit murder-for-hire to kill the Saudi ambassador, nobody could make that up, right?"
Mrs Clinton said the alleged plot could lead to even greater isolation of Iran as the world reacts to the claims.
Both she and President Barack Obama, who was first briefed on the plot in June, are ringing round world leaders to discuss the developments and counter Iranian denials.
"We want to reassure our friends that the complaints against Iran are well-founded," she said.
As she spoke, Alizreza Miryusefi, the press attache at Iran's mission to the United Nations, said the accusations were "totally baseless".
Earlier, IRNA, Iran's official news agency, had claimed the allegations were "America's new propaganda scenario"