Iran has greeted the re-imposition of United States sanctions with air defence drills and an acknowledgement from President Hassan Rouhani the nation faces a "war situation", raising tensions in the Middle East.

Key points: Oil and financial sanctions expected to further damage Iran's struggling economy

Oil and financial sanctions expected to further damage Iran's struggling economy Eight countries will be allowed to temporarily keep buying Iran's oil

Eight countries will be allowed to temporarily keep buying Iran's oil China and EU both expressed opposition to sanctions, while Israel welcomed the move

The oil and financial sanctions end all the economic benefits the US granted to Tehran for its 2015 nuclear deal with world powers, even though Iran has been abiding by the accord that saw it limit its enrichment of uranium.

While currently not threatening to resume higher enrichment, in recent months Iranian officials have made a point to threaten that it could resume at any time faster than before.

The new US sanctions are expected to hurt Iran's vital oil industry, a crucial source of hard currency for a country already in the grip of an economic crisis.

Its national currency has plummeted over the past year, sending prices for everything from mobile phones to medicine skyrocketing.

The US said the sanctions were not aimed at toppling the Government, but persuading it to radically change its policies, including its support for regional militant groups and its development of long-range ballistic missiles.

However, President Donald Trump's personal lawyer, Rudy Giuliani, and National Security Adviser John Bolton both have made public statements supporting overthrowing Iran's theocratic Government.

Iran defiant in face of sanctions

Mr Rouhani was defiant as the sanctions kicked in, vowing Iran would continue to sell its oil.

"America wanted to cut to zero Iran's oil sales … but we will continue to sell our oil … to break sanctions," he said.

Thousands of Iranians rallied in Tehran to mark the anniversary of the US Embassy takeover by militant Iranian students. ( AP: Vahid Salemi )

Iranian state television aired footage of air defence systems and anti-aircraft batteries in two-day military manoeuvres underway across a vast stretch of the country's north.

Army General Habibillah Sayyari said both the national army and the country's paramilitary Revolutionary Guard were taking part in the exercise.

Mr Rouhani, meanwhile, pledged to government officials in comments aired on state television that Iran would overcome the sanctions.

"We are in the war situation," he said. "We are in the economic war situation."

Iranian demonstrators burn representations of the US and Israeli flags during a rally in front of the former US embassy. ( AP: Vahid Salemi )

"We are confronting a bullying enemy. We have to stand to win."

Eight countries exempt from US sanctions

The United States has granted exemptions to eight countries allowing them to temporarily continue buying Iranian oil, Secretary of State Mike Pompeo said.

Some of the eight countries — China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea — include Iran's top customers.

Mr Pompeo said more than 20 countries had already cut their oil imports from Iran, reducing purchases by more than 1 million barrels per day.

Washington's decision to restore all sanctions lifted under the 2015 nuclear deal has not been well received in Iran. ( AP: Vahid Salemi )

China and the European Union both expressed opposition to the US sanctions.

"The European Union does not approve of it," European Economic Affairs Commissioner Pierre Moscovici told franceinfo radio, hours after the sanctions came into force.

Speaking at a daily news briefing in Beijing, Chinese foreign ministry spokeswoman Hua Chunying said China's lawful trade cooperation with Iran should be respected, and expressed regret at the re-imposition of sanctions.

"We regret this decision by the US," she said.

Netanyahu praises US sanctions as 'big day for Israel'

Israel, on the other hand, welcomed the move.

Israeli Prime Minister Benjamin Netanyahu lauded the newly restored sanctions, calling them "historic" and saying they would "strangle" what he described as Iranian state-sponsored terrorism.

Sorry, this video has expired Political scientist Joseph Kechichian says US sanctions will hurt Iranians ( Beverley O'Connor )

He called the move "a big day for the state of Israel".

Israel has been a fierce opponent of the 2015 Iran nuclear deal from which the US withdrew this year, saying the deal did not rein in Iran's regional military activities.

Meanwhile, the Belgium-based SWIFT financial messaging service said it was suspending some unspecified Iranian banks' access to its messaging system in the interest of the stability and integrity of the global financial system.

In a brief statement, SWIFT made no mention of US sanctions coming back into effect.

AP/Reuters