By Justyna Pawlak and Sebastian Moffett
LUXEMBOURG (Reuters) - European Union governments plan to ratchet up sanctions pressure against Iran over its nuclear program on Monday, approving new measures against Tehran's banking sector, industry and shipping.
The new sanctions mark one of the toughest pushes against Iran by Europe to date, and come amid mounting concerns over the Islamic Republic's military intentions and the failure of diplomacy to solve the atom stand-off this year.
Iran insists its nuclear work has only peaceful dimensions and has refused in three rounds of talks since April to scale it back unless major economic sanctions are lifted.
But governments in Europe and the United States have refused to do so and, instead, are tightening the financial screws against Tehran as fears grow that the nuclear dispute could envelop the Middle East in a new war.
"In the last couple of months Iran has not budged on any of the key issues and we must therefore increase the pressure through sanctions," German Foreign Minister Guido Westerwelle said in Berlin.
Speaking a day before his counterparts meet in Luxembourg to approve new sanctions, he said diplomacy was still an option.
"Our offer to Iran still stands: substantial negotiations with the clear aim of preventing Iran from arming itself with nuclear weapons. It is time for a political solution."
Iran's nuclear interlocutors -- Germany, France, Britain, United States, China and Russia -- asked Tehran this year to abandon the enrichment of uranium to 20 percent, a crucial technological step on route to producing an atom bomb.
Tehran's refusal has lead Israel, widely understood to be the only nuclear power in the Middle East, to threaten to bomb its nuclear installations.
At Monday's Luxembourg meeting, foreign ministers will also extend measures levied against Belarus over human rights abuses, and approve a new round of sanctions against Syria to pressure President Bashar al-Assad to halt violence against rebels.
On Sunday night, EU foreign ministers dined with Sergei Lavrov, foreign minister of Russia, a longtime supplier of arms to Assad's government - though Lavrov said in June that Moscow is not delivering offensive weapons to Syria.
"We must not cease to strive for common solutions to international problems, even when this is very difficult, as with the current conflict in Syria," Westerwelle said.
The dinner lasted three-and-a-half hours, and was "very open and frank and friendly", according to one EU diplomat. The foreign ministers talked first about bilateral issues between the European Union and Russia, and then about international issues, in particular Syria and Iran.
The new sanctions on Iran mark a significant change of policy for the European Union which has focused in the past on targeting specific people and companies with economic restrictions.
It has traditionally lagged the United States in imposing blanket industry bans, wary of punishing citizens while inflicting pain on governments.
But pressure on Iran is already doing significant damage to its economy, in part due to an oil embargo levied by the EU this year and Washington's new financial sanctions.
Earlier this month, riots broke out in protest against the collapse of the rial currency, which has lost some two thirds of its value against the dollar in the last year.
An EU diplomat has told Reuters the new European measures include a ban on financial transactions, with some exceptions for those involving humanitarian aid, food and medicine purchases and provisions for legitimate trade.
In a reversal of existing European policy, the ban will require European traders to apply to their governments for authorization before they can finance any transactions in allowed goods. Previously, the EU's more narrow approach was to allow trade broadly while banning specific products.
Trade will be hampered further by a new ban on Europeans extending short-term trade guarantees.
"The new EU sanctions will augment the already severe pain that sanctions are inflicting on Iran's economy," said Cliff Kupchan, a Middle East analyst at consultancy Eurasia Group.
EU states will be banned from selling metals and graphites - crucial in steel-making - to Iran. The EU will also ban imports of natural gas from Iran.
The EU is also targeting Iran's shipping industry, in an effort to curb Tehran's ability to sell oil outside of Europe and the United States to obtain funds and hard currency.
New measures will forbid European companies from providing shipbuilding technology and oil storage capabilities, as well as flagging and classification services to Iranian tankers.
(Additional reporting by Michelle Martin in Berlin, Fredrik Dahl in Vienna and Angelika Stricker in Luxembourg, editing by Rosalind Russell)