President Donald Trump's administration on Thursday imposed sweeping sanctions on Iran's banking sector, taking a major new step aimed at crippling the arch-rival's economy weeks ahead of US elections.

The Treasury Department said it was designating 18 major Iranian banks, a step that could largely cut off the nation of 80 million people from the world's financial system just as it tries to cope with the Covid-19 pandemic.

The Trump administration did not list specific accusations against most of the banks, instead declaring broadly that the entire Iranian financial sector may be used to support the government's contested nuclear program and its "malign regional influence." 

Treasury Secretary Steven Mnuchin said that the action would "stop illicit access to US dollars." 

"Our sanctions programs will continue until Iran stops its support of terrorist activities and ends its nuclear programs," he said in a statement.

The Treasury Department said it was exempting transactions in humanitarian goods such as food and medicine. 

But European diplomats say that US sanctions nonetheless have dire humanitarian consequences, with few institutions in other nations willing to take the risks of legal action in the world's largest economy. 

The Treasury Department said its sanctions will be effective in 45 days, giving companies time to wind down transactions in Iran. 

The timeframe will also likely give anyone working with Iran a chance to see the outcome of the November 3 election, with polls showing Trump trailing to Democrat Joe Biden, who supports a return to diplomacy with Iran. 

Trump has pursued a policy of "maximum pressure" aimed at reining in Iran, the arch-rival of US allies Saudi Arabia and Israel. 

The Trump administration has already moved to stop all Iranian oil exports and bolted from a deal negotiated under former president Barack Obama through which Iran curtailed its nuclear program.