EU foreign ministers said a valuable trade agreement could be at risk if Iran fails to quell international concerns over nuclear non-proliferation, fighting global terrorism, human rights and the Middle East peace process.
"More intense economic relations can be achieved only if progress is reached in the four areas of concern," the ministers said in a statement issued at talks, AFP reported.
Iran is under pressure from the world community and the UN's International Atomic Energy Agency (IAEA) to open up its nuclear programme to international weapons inspections.
The IAEA has given Iran until 31 October to disprove US allegations that it is seeking to build nuclear weapons.
Still, the EU unlike the US is pursuing a policy of constructive engagement with Iran and has conducted talks on a trade accord with the country over the past 12 months.
"It is clear that Iran's trade relationship with the EU is very important. It is important that pressure is not coming from one country but from a group of countries"
Unidentified UN diplomat
The EU is, at the same time, currently ratcheting up the pressure.
On Monday the foreign ministers reiterated a demand that Tehran sign an additional protocol to the nuclear Non-Proliferation Treaty (NPT), allowing IAEA inspectors to descend on its nuclear sites without warning.
Diplomats familiar with the standoff said the EU warning could be an important lever in the simmering crisis.
"It is clear that Iran's trade relationship with the EU is very important. It is important that pressure is not coming from one country but from a group of countries," said a UN diplomat close to the IAEA in Vienna, AFP reported.
German Foreign Minister Joschka Fischer said it was imperative to prevent a “nuclear arms race ... in one of the most unstable and dangerous regions in the world at the moment.”