Gibraltar port and law enforcement agencies, aided by the British marines, detained the Grace 1 super tanker early Thursday morning (local time), the territory's Chief Minister Fabian Picardo said in a statement.
The 330-meter (1,000-foot) supertanker known as the Grace 1 is a Panamanian-flagged vessel believed to have been en route to deliver oil to Syria at Iran's behest when it was seized by the Royal Marines.
Iranian Foreign Ministry spokesman Abbas Mousavi called the ship's seizure "odd and destructive".
Oil tankers near the Strait of Hormuz have been targeted in mysterious attacks, which the US says Iran is behind, an accusation denied by Tehran.
TENSIONS with Iran have soared further after Abbas Moussavi, a spokesman told Iranian TV the United Kingdom had committed "a form of piracy" after Royal Marines boarded an oil tanker as it passed through the Strait of Gibraltar.
With nuclear diplomacy at the heart of the crisis, Iran announced this week it had amassed more fissile material than allowed under its deal, and said it would purify uranium to a higher degree than permitted from July 7.
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"We are analyzing the circumstances and seeing how they affect our sovereignty", said Josep Borrell, the acting Spanish foreign minister and the EU's official nominee to be the next High Representative for Foreign Affairs and Security Policy.
But the likelihood that the cargo was Iranian drew a link between the incident and a new United States effort to halt all global sales of Iranian crude, which Tehran has described as an illegal "economic war" against it.
"Spain didn't want to interfere because the issue was compliance with European Union sanctions", a Spanish foreign ministry spokesman said.
Olivier Dorgans, an economic sanctions expert at Hughes Hubbard & Reed law firm in Paris, said the British move appeared meant to send a warning to the Iranians that if they pushed on with their nuclear breaches, European countries would act.
A senior official in Iran's Revolutionary Guards said Friday that it would be the Islamic Republic's "duty" to seize a British oil tanker in retaliation for the capture of an Iranian ship in Gibraltar by the Royal Marines.
"America & our allies will continue to prevent regimes in Tehran & Damascus from profiting off this illicit trade", John Bolton concluded.
The EU says the facility therefore provides financial support to the Syrian government, which is subject to sanctions because of its repression of civilians since the start of the uprising against President Bashar al-Assad in 2011.
The move was seen as an attempt to put pressure on the European signatories - Britain, France and Germany - to persuade the U.S. to lift its sanctions which are crippling the Iranian economy.