"Such statements are an admission of lawlessness, an admission of crimes against humanity, because the US sanctions, the unilateral US sanctions, against the Iranian nation have no justification or legal basis," said foreign ministry spokesman Esmaeil Baqaei, adding that the move was "absolutely illegal".

The US decision on Sunday is the latest in President Donald Trump's policy of exerting "maximum pressure" on Tehran over allegations that the country is seeking nuclear weapons capability.

Tehran has consistently denied the claims.

The decision not to renew the waiver was made to "ensure we do not allow Iran any degree of economic or financial relief," the US Department of State said.

Iran supplies a third of Iraq's gas and electricity, providing Tehran with substantial income.

The waiver for Iraq was introduced in 2018, when Washington reimposed sanctions on Tehran after Trump first reinstated his "maximum pressure" policy which saw the US withdrawing from a landmark nuclear deal with Iran.

Trump has recently called for striking a new nuclear deal with Iran, and on Friday, the US president said he had written Iran's supreme leader Ayatollah Ali Khamenei to press for new talks.

He also warned of possible military action if Iran refuses.

Iran says it "has not received" any letters.

On Saturday, Khamenei slammed what he described as "bullying" tactics after Trump's threats.

"Some bully governments -- I really don't know of any more appropriate term for some foreign figures and leaders than the word bullying -- insist on negotiations," he said.

"Their negotiations are not aimed at solving problems, they aim at domination."