In a speech to US war veterans in Reno, Nevada, Mr Bush renewed his accusations that Tehran has provided training and weapons for extremists in Iraq.

Earlier, Iranian President Mahmoud Ahmadinejad warned that US authority in the region was rapidly collapsing, and Iran would help fill the void.

"Soon, we will see a huge power vacuum in the region," Mr Ahmadinejad said.

"Of course, we are prepared to fill the gap, with the help of neighbours and regional friends like Saudi Arabia, and with the help of the Iraqi nation."

'Murderous activities'

In his speech to the American Legion, Mr Bush hit back, accusing Iran's Revolutionary Guards of funding and arming insurgents in Iraq.

Iran's actions threaten the security of nations everywhere

President Bush

US 'seizes Iranian group in Iraq'

And he said Iran's leaders could not avoid some responsibility for attacks on coalition troops and Iraqi civilians.

"I have authorised our military commanders in Iraq to confront Tehran's murderous activities," he said.

The BBC's Justin Webb, in Washington, says this looks like a conscious effort by the White House to elevate the tension between Washington and Tehran to a new level.

Such an effort might be designed to avoid the need for armed conflict or might equally be an effort to bring that conflict about, our correspondent says.

The Iranian authorities have consistently denied accusations that they are helping militants in Iraq.

Shortly after Mr Bush made his address, Iranian officials reported that seven Iranians working for the country's electricity ministry had been arrested in Baghdad by US forces.

'Nuclear threat'

In a wide-ranging speech, Mr Bush also tackled the issue of Iran's nuclear ambition - which Tehran insists is solely to provide power, but the US believes may be used to develop weapons.

HAVE YOUR SAY Lots of accusations, but absolutely no evidence to support them. He's not even taking the trouble to make any evidence up this time!

David, Newcastle

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"Iran's active pursuit of technology that could lead to nuclear weapons threatens to put a region already known for instability and violence under the shadow of a nuclear holocaust," he said.

"Iran's actions threaten the security of nations everywhere.

"We will confront this danger before it is too late."

It was Mr Bush's second major speech on foreign policy in a week.

Correspondents say he is seeking to rally support for the so-called surge strategy of sending more troops to Iraq.