Israel warned on Monday that it could attack suspected Iranian missile caches in Iraq, as it has done in Syria.
The threat, from Defence Minister Avigdor Lieberman, followed a report by Reuters claiming that Tehran had given ballistic missiles to Shiite proxies in Iraq and was developing the capacity to build more.
Israel, said Mr Lieberman, would not limit itself to Syria if it felt the need to deal with Iranian threats in the region.
"We will contend with any Iranian threat, and it doesn't matter from where it comes ... Israel's freedom is total. We retain this freedom of action," Mr Lieberman told a conference hosted and broadcast live by the Israel Television News Company.
"We are certainly monitoring everything that is happening in Syria, and regarding Iranian threats we are not limiting ourselves just to Syrian territory. This also needs to be clear," he said.
Comment: Russia holds the key to nearly half of Syria – and with it, the power to keep Iranian dominance at bay
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Three Iranian officials, two Iraqi intelligence sources and two western intelligence sources were cited as saying that Iran transferred short-range ballistic missiles to allies in Iraq over the last few months. Five of the officials said it was helping those groups to start making their own.
Iraq's Foreign Ministry said on Sunday it was "astonished at the allegations" contained in the report.
“Iraq is not obliged to respond to media reports that lack tangible evidence backing up their claims and allegations,” the ministry said in a statement. “All state institutions in Iraq uphold Article 7 of the constitution, which prohibits the use of Iraqi land as a base or passage to be used in operations targeting the security of other states."
Tehran rejected the report.
US Secretary of State Mike Pompeo said on Twitter he was “deeply concerned” by news that Iran was transferring ballistic missiles into Iraq. He urged Iraqi leaders to form a new government quickly after a May 12 parliamentary election.
The news follows a spike in tensions between Tehran and Washington over a landmark nuclear deal signed between Iran and world powers in 2015. US President Donald Trump pulled out from the pact in May and reimposed damaging sanctions on the Iranian economy.
It may also put France, Germany and Britain – the three European signatories to the nuclear deal – in a delicate position, as they have been trying to salvage the agreement despite new US sanctions against Iran.
Israel began carrying out air strikes in Syria in 2013 against suspected arms transfers and deployments by Iran and its Lebanese ally, the Shiite Hezbollah militia.
Russia has ignored these operations and co-ordinated with other powers conducting their own military operations in Syria.
Baghdad and Tel Aviv have not openly traded blows in decades despite their formal state of hostilities.
During the 1991 Gulf War, Iraq fired dozens of Scud rockets into Israel, which did not retaliate out of consideration for US efforts to maintain an Arab coalition against Saddam.
Meanwhile, a report by The Wall Street Journal uncovered on Thursday the role of Iran in helping Iraqi militias attack American forces during the US invasion of 2003.
The interrogation of Qais Al Khazali, the leading figure of a major Shiite militia who recently won political power in Iraq, shows how Iran provided weapons and training to Shiite militias for them to launch attacks on American troops and remove them from the country.