President Donald Trump has signed an executive order targeting Iran's supreme leader and his associates with financial sanctions.
Mr Trump said the supreme leader is responsible for Iran's hostile conduct.
He said the United States does not seek conflict with Iran but will continue to increase pressure on the country to prevent it from developing nuclear weapons and supporting militant groups.
The United States pulled out of a 2015 nuclear deal that world powers signed with Iran and has already applied crushing sanctions on the country's economy.
The president said Monday's action follows a series of aggressions by Iran, including the shooting down of a 100 million dollar US surveillance drone over the Strait of Hormuz.
"These measures represent a strong and proportionate response to Iran's increasingly provocative actions," Mr Trump told reporters in the Oval Office.
"We will continue to increase pressure on Tehran until the regime abandons its dangerous activities and its aspirations, including the pursuit of nuclear weapons, increased enrichment of uranium, development of ballistic missiles, engagement and support for terrorism, fuelling of foreign conflicts and belligerent acts directed against the United States and its allies."
The sanctions work to deny supreme leader Ali Khamenei and his close aides access to money and support.
Iran's naval commander, however, has warned that Iranian forces would not hesitate to act again and shoot down more US surveillance drones that violate Iranian airspace.
The US said the drone was flying over international waters.
Tensions have been escalating since Mr Trump last year withdrew the US from a global nuclear deal with Iran and re-imposed economic sanctions on Iran.
Iran has decried the US sanctions, which essentially bar Iran from selling its oil internationally, as "economic terrorism".
The US blamed Iran for attacks on two oil tankers this month near the strait, denouncing what it called a campaign of "escalating tensions" in a region crucial to global energy supplies.