Iran test fired nine long- and medium-range missiles on Wednesday, state media said, including one which it has said could reach Israel and U.S. bases in the region.
The tests occurred at a time of increased tension between Iran and Israel over Tehran's nuclear programme, which the West fears is aimed at making bombs. Iran, the world's fourth-largest oil exporter, says its programme is only for electricity.
A New York Times report in June said Israel had practised an attack on Iranian nuclear sites, and the tension has rattled financial markets. U.S. and London Brent crude oil futures rose by more than a dollar on news of Iran firing the missiles.
"The aim of holding this manouevre is to show (Iran's) will and authority to the enemies that have threatened Iran with harsh language in recent weeks," state broadcaster IRIB quoted a Revolutionary Guards commander as saying.
"We ... launch these missiles in honour of Iran, to show that this is only a small part of Iran's capability and defensive power," said the commander, Hossein Salami.
Israel, believed to be the Middle East's only nuclear-armed power, has vowed to prevent Iran from acquiring an atomic bomb. The United States says it wants to resolve the dispute by diplomacy but has not ruled out military action.
"Israel does not threaten Iran, but the Iranian nuclear programme combined with their aggressive ballistic missile programme is a matter of grave concern." Mark Regev, spokesman for Israeli Prime Minister Ehud Olmert, said after the tests.
IRAN'S WARNING
An aide to Iran's Supreme Leader was quoted as saying on Tuesday the Islamic Republic would hit Tel Aviv, U.S. shipping in the Gulf and U.S. interests around the world if it was attacked over its nuclear activities.
State Press TV said the "highly advanced" missiles tested by the Guards included a "new" Shahab 3 missile, which officials have said could reach targets 2,000 km (1,250 miles) away.
The TV, which said the Shahab 3 carries a conventional warhead, showed images of missiles blasting off in the desert and leaving long vapour trails as they soared into the sky.
Other ground-to-ground missiles tested by naval and air units of the Guards were the Zelzal and Fateh, with respective ranges of 400 km and 170 km, state TV said.
Iran has threatened to close the Strait of Hormuz if it comes under attack. About 40 percent of globally traded oil moves through the Gulf waterway.
Leaders of the Group of Eight rich countries expressed serious concern at the proliferation risks posed by Iran's nuclear programme.
In a statement issued after G8 leaders met in Hokkaido, northern Japan, the grouping urged Tehran to suspend all uranium enrichment-related activities -- a step Iran has rejected.
French President Nicolas Sarkozy said major world powers had decided to send European Union foreign policy chief Javier Solana to Iran for talks on an incentives package they offered last month to induce Tehran to change its nuclear policy.
Sarkozy did not say when Solana would travel to Tehran. Iran formally replied on Friday to the offer by the United States, France, Britain, China, Russia and Germany.
France said Iran's response had ignored the world powers' demand that it suspend enrichment.
The U.S. dollar weakened on Wednesday and U.S. treasuries trimmed their losses over news of the missile tests.