The Tehran court handed down its sentence at a time of high tension with Israel and speculation of a possible Israeli attack on Iran's nuclear installations.

Iranian media identified Ali Ashtari as the manager of a company selling communications and security equipment to Iran's government and said he had been accused of "engaging in espionage for (Israel's) Mossad intelligence service."

Ashtari, who had been in financial trouble, said he had accepted a loan of $50,000 from Israeli agents, Fars said.

The 43-year-old was shown on television apparently speaking in court. It included the following exchange:

"I pointed out these projects," Ashtari said and was interrupted by his questioner who asked: "Missile?" To which Ashtari replied: "Yes, and they immediately expressed interest to cooperate with me and to provide me with a loan."

Iran has often broadcast confessions in the past from those accused of threatening state security.

Ashtari's name indicated he was a Shi'ite Muslim but Iranian media did not specify his religion.

Tension between the Islamic Republic and Israel has risen sharply since a U.S. newspaper report this month said the Jewish state had rehearsed a possible strike against Iran aimed at thwarting its disputed nuclear ambitions.

In Jerusalem, an Israeli government official said: "We have no knowledge whatsoever regarding this case."

Iran says its nuclear programme is aimed at generating electricity. The West and Israel fear Iran is seeking to build atomic bombs. Israel is believed to be the only Middle Eastern state with nuclear arms.

The report has prompted tough statements of military prepardeness from Iranian commanders.

"Our response to any aggression will be crushing, fiery and powerful and the armed forces are at a level of utmost readiness in defence of the country," Mohammad Hejazi, a senior commander of the Revolutionary Guards, told a military event, Fars said.