Western powers have expressed serious concerns after Iran launched its first domestically-made satellite into orbit.
Iran says the satellite, carried on a Safir-2 rocket, is meant for research and telecommunications purposes and insists its intentions are peaceful.
But the US, UK and France have voiced concerns that the technology used could lead to ballistic missile development.
The move comes a day before officials from six world powers meet to discuss a row over Iran's nuclear activities.
Iran is subject to United Nations sanctions because some Western powers think it is trying to build a nuclear bomb.
Iran has an opportunity to step up and become a productive member of the international community
US Secretary of State Hillary Clinton
Tehran denies that claim and says its nuclear ambitions are limited to the production of energy.
The group of six - comprising the US, Russia, China, UK, France and Germany - has offered Iran a package of incentives if it suspends uranium enrichment and enters into talks on its nuclear programme.
US Secretary of State Hillary Clinton, speaking after meeting UK Foreign Secretary David Miliband, said the US representative at the talks in Frankfurt would continue to discuss the approach to take towards Iran.
"It is clear that... Iran has an opportunity to step up and become a productive member of the international community," she said.
"As President Obama said, we are reaching out a hand [to Iran] but the fist has to unclench."
President Mahmoud Ahmadinejad said Monday night's launch of the Omid (Hope) satellite had been successful and that with it Iran had "officially achieved a presence in space".
IRAN SPACE AMBITIONS
Feb 2009: Iran declares launch of first home-built satellite into orbit
Aug 2008: Iran launches rocket 'capable of carrying satellite'
Feb 2008: Iran launches research rocket as part of satellite launch preparations, Tehran says
Feb 2007: Iran says it launches rocket capable of reaching space, which makes parachute-assisted descent to Earth
Oct 2005: Russian rocket launches Iran's first satellite, Sina-1
The event appeared to be timed to coincide with the 30th anniversary of the Iranian revolution.
Reacting to the launch, White House spokesman Robert Gibbs said: "This action does not convince us that Iran is acting responsibly to advance stability or security in the region."
US state department official Robert Wood said Iran's activities could "possibly lead to the development of ballistic missiles" and were of "great concern".
French foreign ministry spokesman Eric Chevallier said France was "very concerned" about the launch.
"We can't help but link this to the very serious concerns about the development of military nuclear capability," he said.
UK Foreign Office minister Bill Rammell said the launch underlined the UK's "serious concerns about Iran's intentions".
"There are dual applications for satellite launching technology in Iran's ballistic missile programme," he said in a statement.
"As a result, we think this sends the wrong signal to the international community, which has already passed five successive UN Security Council resolutions on Iran's nuclear and ballistic missile programme."
Iran says its satellite will be used for research and telecommunications
Speaking after the launch, Iranian Foreign Minister Manouchehr Mottaki stressed the satellite project was "for purely peaceful purposes and to meet the needs of the country".
Iran has now joined a small group of about a dozen nations that have developed the capability to put a satellite into orbit.
Of greater concern to the US and and allies though will be what it says about Iran's developing missile capability, our correspondent says, because there is little intrinsic difference between a rudimentary space-launcher and a long-range ballistic missile.
It is just such a potential threat that the US missile defence system in central Europe is intended to defend against, he says, and Iran's move adds an additional level of complication as US President Barack Obama seeks to open a new path of dialogue with Tehran.
John Pike, an expert at the US-based think-tank GlobalSecurity.org, confirmed to the BBC that the launch had been a success and the satellite was now established in a low Earth orbit.
Last August, Iran said it had successfully launched a rocket capable of carrying its first domestically built satellite, having in February launched a low-orbit research rocket as part of preparations for the satellite launch.
That launch marked the inauguration of a new space centre, at an unidentified desert location, which included an underground control station and satellite launch pad.
The White House called the 2008 launch "unfortunate", warning it would further isolate Iran from the global community.
In February 2007, Iran said it had launched a rocket capable of reaching space - before it made a parachute-assisted descent to Earth.
This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.