Iran's Revolutionary Guard warns it is ready to respond saying its missiles could hit US bases and ships within 2,000km.
Fears over an outbreak of fighting between Iranian and United States forces in the Gulf were revived on Sunday after Washington accused Tehran of carrying out devastating drone attacks on the world's biggest oil-producing facilities in Saudi Arabia.
On Sunday night US President Donald Trump said "there is reason to believe" that the White House knows the culprit of the attack, and that the military is "locked and loaded" to take action.
He said the US is "waiting to hear" from Riyadh "as to who they believe was the cause of this attack, and under what terms we would proceed."
Trump's warning followed a National Security Council meeting at the White House that included Vice President Mike Pence, Secretary of State Mike Pompeo and Defense Secretary Mark Esper.
On Monday, Iran dismissed the US allegations as "unacceptable" and "baseless", according to state television.
Earlier, Foreign Ministry spokesman Abbas Mousavi also said that the US allegations over the pre-dawn attack on Abqaiq and Khurais in Saudi Arabia's Eastern Province were meant to justify "actions" against Iran,
"Such remarks ... are more like plotting by intelligence and secret organisations to damage the reputation of a country and create a framework for future actions," said Mousavi.
News of the latest tensions pushed the price of US crude oil up $5.61 per barrel, or 10.2 percent to $60.46 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, surged $7.84 per barrel, or 13 percent, to $68.06 per barrel.
Earlier, US Secretary of State Mike Pompeo blamed Iran for the drone attacks and said there's "no evidence the attacks came from Yemen".
Pompeo said: "Iran has now launched an unprecedented attack on the world's energy supply."
Senior US officials cited intelligence assessments, including satellite imagery, on Sunday to support their case that Iran was responsible.
The images allegedly show impacts consistent with the attack coming from the direction of Iran, rather than from Yemen, they told the AP news agency on condition of anonymity.
Additional devices that apparently did not reach their targets have been recovered and were being analysed by Saudi and US intelligence agencies, the officials said.
'A powder keg'
Iran's elite Revolutionary Guard force said on Sunday it was prepared for a "full-scale war".
In a not-so-subtle threat, the commander of the Islamic Revolutionary Guard Corps' aerospace arm noted Iran's missiles could hit US bases and ships within a range of 2,000km (1,240 miles).
"Because of the tension and sensitive situation, our region is like a powder keg," Brigadier-General Amir Ali Hajizadeh said.
"Neither us nor the Americans want a war. When these contacts come too close, when forces come into contact with one another, it is possible a conflict happens because of a misunderstanding," said Hajizadeh.
"Of course some forces facing each other in the field could do something by which a war could start. We have always prepared ourselves for a full-fledged war."
Hajizadeh said Iranian forces were ready for a counterattack if the US responded militarily for the oil facility attack, naming the Al Udeid Air Base in Qatar and al-Dhafra Air Base near Abu Dhabi in the United Arab Emirates as immediate targets, as well as navy ships in the Gulf and the Arabian Sea.
Actions on any side could break into the open a twilight war that's been raging just below the surface of the wider Gulf over the last few months.
Already there's been mysterious attacks on oil tankers that the US blamed on Iran, while Tehran shot down a US military surveillance drone - which nearly sparked a deadly retaliatory attack.
"There are hawks in Iran and America and in the region who want military conflicts," said a senior Iranian government official, who asked not to be named because of the sensitivity of the matter.
"Such attacks will make a military confrontation inevitable and that is what hardliners in Iran and elsewhere want. Such confrontation will harm not only Iran but all the countries in the Persian Gulf."
In response to Trump's latest statement, Bernie Sanders, Democratic senator and opposition presidential candidate, warned that "Only Congress - not the president - can declare war. And Congress will not give you the authority to start another disastrous war in the Middle East just because the brutal Saudi dictatorship told you to."
In an interview with Al Jazeera, Lawrence Korb, former US Assistant Defense Secretary, said the last thing Trump wants is a conflict with Iran.
"If we would attack Iran, then we would have a very, very violent
conflict that would spread throughout the whole Gulf," he said.
"That would only escalate the problems that we have. Really, what we need to do is end the civil war in Yemen."
But Korb also noted that Trump is averse at starting wars, and that his rhetoric "usually is not followed up by action."
In a statement, the National Iranian American Council urged the Trump administration to "invest seriously in deescalatory measures to stabilise the whole region."
"If Trump fails to heed his anti-interventionist instincts and listens to the warmongers surrounding him, the US risks triggering a regional war more catastrophic than the 2003 invasion of Iraq."
Tehran and Washington have been at loggerheads since May last year when Trump pulled out of a 2015 multilateral deal that promised Iran relief from sanctions in return for curbs on its nuclear programme.
Since its withdrawal from the nuclear accord, the US has slapped crippling sanctions on Iran as part of a campaign of "maximum pressure".
The Islamic Republic responded by reducing its nuclear commitments and threatened to block the Strait of Hormuz in the Gulf, through which an estimated 20 percent of the world's oil passes.
On Sunday, Iran's President Hassan Rouhani called for a regional summit to address the attacks on Saudi Arabia, and accused Washington of diverting blame for the war in Yemen, where US ally Saudi Arabia leads a military coalition that has regularly carried out air attacks.
"Innocents die every day in Yemen... Americans - instead of blaming themselves and confessing that their presence in the region is creating problems - blame the region's countries or Yemen's people," Rouhani said.
"If we want there to be real security in the region, the solution is that America's aggression cease. We believe the region's issues can be solved through talks in Yemen, Yemeni-Yemeni negotiations - they must decide for themselves. The bombardment of Yemeni people must stop," Rouhani said.
Saudi Arabia and Iran back opposing factions across the Middle East, from Yemen and Syria to Lebanon and Iraq.
Saudi Arabia and the United Arab Emirates lead a military coalition to back Yemen's internationally recognised government against the Houthis. The war in Yemen has been described by the UN as the world's worst humanitarian disaster