The accord, which calls for joint investments, will significantly boost the role of the under-tapped port of Chabahar connecting Iran through India and Afghanistan to central Asia.

Earlier, India and Iran signed a deal to develop the port, which is in the Gulf of Oman on Iran's southern coast. The deal was described as a "game-changer" by both sides.

PM Modi said India will open a $500-million line of credit to develop Chabahar into a regional trading hub.This is the first foreign port in which India is involved to this extent.

The port will help India bypass Pakistan to transport goods to Afghanistan and central Asia using a sea-land route.

Transport Minister Nitin Gadkari, who is also in Tehran, claims that the distance from Mumbai to Delhi is greater than that between Chabahar and Gujarat's Kandla port.

Pakistan does not allow India to send goods through its territory to Afghanistan and has only recently begun to allow a trickle of Afghan exports to cross through to India.

Besides developing the port, India will also help build a 500-km railway line between Chabahar and Zahedan.

India's move is also being seen as a balance to China's influence in Pakistan. India wants a counter to Pakistan's Gwadar port, which was built with Chinese assistance and is 72 km from Chabahar.

PM Modi's visit to the oil-rich nation comes four months after the sanctions on Iran were lifted and the international community is re-engaging with the nation.