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It follows the International Atomic Energy Agency's report on Iran and concerns about its nuclear programme.
From 1500 GMT on Monday, all UK credit and financial institutions are required to cease all transactions with banks including the Central Bank of Iran.
Chancellor George Osborne said there was evidence that Iran's banks were funding its nuclear weapons programme.
This is the first time the UK has used powers created under the 2008 Counter-Terrorism Act to cut off a country's banking sector in this way.
Mr Osborne said: "We have ceased all contact between the UK's financial system and the Iranian financial system.
"We're doing this because of international evidence that Iran's banks are involved in the development of Iran's weaponised military nuclear weapon programme.
"We're doing this to improve the security not just of the whole world, but the national security of the United Kingdom."
Iran insists its nuclear programme is purely civilian and for scientific research, but Western nations fear it is trying to build a nuclear weapon.
A report from the IAEA earlier this month said the organisation had "serious concerns regarding possible military dimensions to Iran's nuclear programme".
It said Iran had "carried out activities relevant to the development of a nuclear explosive device".
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Originally posted by keepithush
Chancellor George Osborne said there was evidence that Iran's banks were funding its nuclear weapons programme.
Mr Osborne said: "We have ceased all contact between the UK's financial system and the Iranian financial system.
"We're doing this because of international evidence that Iran's banks are involved in the development of Iran's weaponised military nuclear weapon programme."
Originally posted by diddy1234
Here comes WWIII !
This move also shows the UK is yet again America's lapdog.
Sorry for the thread drift, but why doesn't the UK stand on it's own two feet ?
I bet BAE are up in arms (pun intended) as they can not do any more filthy deals to Iran.edit on 21/11/2011 by diddy1234 because: (no reason given)