Confrontation between Washington and Tehran is now "explosive" and could lead to military escalation, Germany's foreign minister said on Monday, becoming the most senior Western official to visit Iran since a war of words erupted last month.

Iran accused the United States of waging economic war by reimposing and extending sanctions. Nevertheless, it reassured Germany's Heiko Maas that it still wants to work with European powers to salvage a deal to curb its nuclear program in return for lifting sanctions, which Washington abandoned a year ago.

European countries have found themselves caught in the middle as the United States and Iran have taken increasingly aggressive postures in recent weeks.

Washington sharply tightened sanctions from the start of May, ordering all countries and companies to halt all imports of Iranian oil or be banished from the global financial system.

It has since also began discussing military confrontation, dispatching extra troops to the region to counter what it describes as Iranian threats.

Iran, for its part, has threatened to increase its enrichment of uranium in response, unless European powers find a way to shield it from the impact of American sanctions.

"The situation in the region here is highly explosive and extremely serious," Maas told a news conference alongside Iran's Foreign Minister Mohammad Javad Zarif. "A dangerous escalation of existing tensions can also lead to a military escalation."

The U.N. nuclear watchdog says Iran is still abiding by the nuclear deal despite the U.S. withdrawal. But experts say that if it carries out its threat to increase its output of enriched uranium, it could eventually violate it.

"We had frank and serious talks with Maas," said Zarif, one of the nuclear deal's architects. "Tehran will cooperate with EU signatories of the deal to save it," he said of the deal.

Zarif blamed the United States for the escalation.

"Reducing tension is only possible through stopping the economic war by America," he said. "Those who wage such wars cannot expect to remain safe."

EUROPEAN ECONOMIC GESTURES FAIL SO FAR

Washington's European allies opposed its decision last year to abandon the nuclear deal. They have promised to help Iran find other ways to trade, though with no success so far. All major European companies that had announced plans to invest in Iran have since called them off for fear of U.S. punishment.

The administration of President Donald Trump argues that the deal, reached under his predecessor Barack Obama, is not tough enough and Tehran can be forced to make more concessions with new sanctions. Europeans say this undermines the pragmatist faction in Iran's leadership and strengthens hardliners.

Iran says the Europeans have not done enough to provide it with alternative ways to engage economically with the outside world. Maas acknowledged limits to how much help the European countries can provide.

"We want to fulfill our obligations," Maas said during his joint news conference with Zarif. "We cannot work miracles, but we will try to avert a failure" of the nuclear deal.

Iranian Foreign Ministry spokesman Abbas Mousavi said: "So far, we have not seen practical and tangible steps from the Europeans to guarantee Iran's interests."

In an effort to protect at least some of Iran's economy from U.S. sanctions, France, Britain and Germany have set up a special-purpose vehicle called Instex, designed to allow trade payments that would bypass sanctions. It has yet to be launched.

"This is an instrument of a new kind, so it's not straightforward to operationalise it," Maas told reporters. "But all the formal requirements are in place now, and so I'm assuming we'll be ready to use it in the foreseeable future."

Washington has denounced the European plans. Diplomats say the system is unlikely to have much impact on commercial trade with Iran but could be used for humanitarian transactions that are permitted under U.S. sanctions.

Washington says the nuclear deal should be expanded to cover other issues including Iran's missile program and its regional policies. European countries share those concerns, although they argue that it would be harder to address them without the nuclear deal in place.

Iran strongly opposes any effort to expand negotiations to cover other issues. Mousavi said as much: "The EU is not in a position to question Iran's issues beyond the nuclear deal."