Indian Prime Minister Manmohan Singh says India wants to strengthen its ties with Iran.
Iran says its nuclear programme is only for producing energy
Mr Singh told parliament that India's support for a resolution reporting Iran to the UN Security Council did not detract from its close relations.
He also said India remained committed to building a pipeline to carry Iranian gas across Pakistan.
Mr Singh's Communist allies have criticised him for voting against Iran at the UN nuclear agency, the IAEA.
The BBC's Nick Bryant in Delhi says India's relationship with Iran has been complicated by internal politics and its global ambitions, and Mr Singh has had to tread a narrow and sometimes difficult path.
But in a speech in the lower house of parliament, Mr Singh defended Delhi's move to vote in favour of the decision to report Iran to the Security Council over concerns surrounding its nuclear programme.
He said the vote on Iran did not "detract from the traditionally close and friendly relations [India is] privileged to enjoy with Iran".
He also said India was deeply concerned by the escalating rhetoric and the possibility of confrontation over the issue.
"We therefore call upon all concerned to exercise restraint, demonstrate flexibility and continue with dialogue to reach an amicable settlement," Mr Singh said.
Domestic and global pressure
The government's Communist allies, whose support is essential for its survival, have accused it of coming under American pressure to vote against Iran at the IAEA.
Last month, the US ambassador to Delhi was reported warning that a deal giving India US nuclear technology could collapse if India did not back the motion against Iran, although he later said his comments were taken out of context.
Mr Singh also recommitted his government to go ahead with a gas pipeline that would to carry gas from Iran via Pakistan - a $7bn project fiercely opposed by Washington.
Our correspondent says the timing of the announcement is also particularly sensitive, given that President Bush is due in Delhi next month.