Iran has seized an Iraqi ship in the Gulf, state media said, in what would be the third such seizure in a month amid heightened tension with the US.
However, Iraq's oil ministry has said it has no connection with the oil tanker.
The ministry said in a statement it "does not export diesel to the international market."
Naval forces of the Islamic Revolutionary Guard Corps "seized this ship around Farsi Island which was carrying around 700,000 litres of smuggled fuel", said a guards statement quoted by the official news agency IRNA.
Seven foreign crew members were arrested during the operation, which was carried out on Wednesday night, according to Fars news agency, which is considered close to the guards.
Tension between Iran and the US have soared this year after Washington stepped up its campaign of "maximum pressure" against the Iran.
Ships have been attacked, drones downed and oil tankers seized since May, after the US withdrew from a landmark nuclear deal between Iran and world powers and reimposed sanctions against the country.
At the height of the crisis, US President Donald Trump called off air strikes against Iran at the last minute in June after the Islamic republic's forces shot down a US drone.
The seizure of the latest vessel would be the third by Iran in less than a month Gulf waters -- a conduit for much of the world's crude oil.
On 18 July, the guards said they had detained the Panama-flagged for MT Riah for alleged fuel smuggling.
A day later, they announced they had impounded the British-flagged Stena Impero in the Strait of Hormuz for breaking "international maritime rules".
Guards boats had been patrolling the Gulf to control traffic and detect illicit trade when they seized it, it said in its statement.
"The ship was transferred to Bushehr and its smuggled fuel was handed over" to the authorities in coordination with judicial authorities, it said.
Fars quoted Brigadier General Ramezan Zirahi, a commander of the guards who carried out the seizure, as saying the vessel had been en route to deliver fuel to Gulf Arab states.
The reports came after an Iranian general said that the chances of a conflict breaking out in the Gulf region had decreased.
"At first glance, it may seem that the situation in the Persian Gulf is heading towards a military conflict but when studying the situation more deeply, we see that chances for such a conflict become less probable," said Brigadier General Ahmadreza Pourdastan.
"All countries which have interests in the region are by no means willing to see a new crisis in the Middle East," he said, quoted by Mehr news agency.
"The military capabilities of our armed forces are to such an extent that the enemies don't dare go for a military option against us.
"The Persian Gulf is like a tinderbox and explosion of the first firecracker can lead to a huge disaster."