The government of the semi-autonomous Kurdish region of northern Iraq has demanded the release of an Iranian arrested by US forces on Thursday.
The US military said the man was a member of the elite Quds Force of Iran's Revolutionary Guards and that he was involved in smuggling explosives.
Both the Iraqi Kurds and Tehran said the man was an Iranian trade official in Iraq on the invitation of the Kurds.
US-led forces seized the man in a hotel in the Kurdish city of Sulaimaniya.
A statement from the president of the Kurdish regional government, Massoud Barzani, said the arrest was illegal.
The Americans "must release this individual as quickly as possible because this kind of attitude does not serve the common interest", said the statement.
The Kurdish regional government and the Iranian foreign ministry said the detained man was the head of cross-border trade for Kermanshah province in western Iran.
The US has accused the Quds Force of helping arm Shia militias in Iraq. Iran denies any involvement with militants.
Tehran is still demanding the release of five Iranians seized in the northern city of Irbil in January who the US says have links to the Revolutionary Guard and were training militants in Iraq.
In August, the US military admitted to what it called a "regrettable incident" after it arrested a group of eight Iranians in Baghdad.
They were freed after the Iraqi government intervened.