Iran's president warned that Tehran will increase its enrichment of uranium to "any amount that we want", starting on Sunday.
Hassan Rouhani's threat put further pressure on European nations to save their nuclear deal and offer a way around intense US sanctions.
The warning, combined with Iran breaking the stockpile limits in the 2015 nuclear accord, could reduce the estimated one year it would need to produce enough material for a nuclear weapon, something Tehran denies it wants.
But as tension rises a year after US President Donald Trump withdrew America from the deal, it looks unlikely that Europe can offer Iran a way to sell its oil on the global market without US sanctions.
The US has rushed an aircraft carrier, B-52 bombers and F-22 fighters to the region, and Iran recently shot down a US military surveillance drone.
"Be careful with the threats, Iran. They can come back to bite you like nobody has been bitten before," Mr Trump tweeted in response to Mr Rouhani's warning.
"The Trump administration is pushing the centre of Iranian politics to the right to the detriment of the Iranian people and the entire region," said Ali Vaez, an Iran analyst for the International Crisis Group.
"Mr Rouhani is clearly at the end of his rope and has no choice other than green-lighting further escalation."
The Iranian president has taken an increasingly hard tone in his remarks to the West.
Mr Rouhani and others in his administration have pushed European signatories to the nuclear deal for not doing enough to ease restrictions on Iran's oil and financial sectors.
That continued on Wednesday in a televised address to his Cabinet.
Mr Rouhani's remarks seem to show that Europe has yet to offer Iran anything to ease the pain of the renewed US sanctions on its oil industry and top officials.
In the nuclear deal, Iran agreed to limit its enrichment of uranium to 3.67 per cent, which is enough for nuclear power plants but far below the 90 per cent needed for weapons.
It also limited its stockpile of enriched uranium to 300 kilograms. In exchange, crippling economic sanctions were lifted.
But after Mr Trump withdrew from the deal, those sanctions and others took effect. On Monday, Iran and the UN's nuclear watchdog agency confirmed that Tehran had breached that stockpile limit.
About two months earlier, Mr Rouhani set the Sunday deadline after which Iran would increase its enrichment of uranium. Wednesday's remarks underlined that.
"From July 7 onward, the level of our enrichment will not be at 3.67 per cent any more," Mr Rouhani said.
"We will put aside this commitment as much as we want to and to any level we think is necessary."
But his remarks, while strident, seemed to insist last-minute diplomacy could still be possible.
"Our advice to Europe and the United States is to go back to logic and to the negotiating table," Mr Rouhani said.
"Go back to understanding, to respecting the law and resolutions of the UN Security Council. Under those conditions, all of us can abide by the nuclear deal."
There was no immediate reaction from Europe, where the EU just the day before finalised nominations to take over the bloc's top posts.
On Tuesday, European powers issued a statement on Iran breaking through its stockpile limit, calling on Tehran "to reverse this step and to refrain from further measures that undermine the nuclear deal".
On Wednesday, Iran marked the anniversary of the US Navy shooting down an Iranian passenger jet in 1988, a mistake that killed 290 people and showed the danger of miscalculation in the current crisis.
