US defense officials said the test seemed to be a failure because the missile crashed or exploded after flying more than 500 miles.
Iran has successfully tested a new ballistic missile that can carry multiple warheads with explosives and can travel up to 2,000km, according to state media.
Iran says it designed, developed and built the missile internally.
"Khorramshahr with an effectual range and unique qualities features an agile missile", Brigadier General Amir Hatami was quoted as saying. Even if those chances are slim, if Iran pushes Israel to the wall, they will nearly certainly respond.
Although UN provisions seek to limit ballistic missile technology, the nuclear agreement negotiated in 2015 by Iran and six world powers, including the United States, does not prohibit Iran from developing such weapons.
Iranian State television carried footage of the launch of the Khoramshahr missile, which was first displayed at a high-profile military parade in Tehran on Friday.More news: Wenger denies confidence problems against big boys
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The test shows that Iran has a multiple warhead missile well within range of Jerusalem.
In apparent defiance to U.S. President Donald Trump's demands, Iranian President Hassan Rohani insisted his country will ask no one's permission to build up its missile stock.
In early March, Iran tested a pair of Fateh-110 short-range ballistic missiles. "As long as Iranians were barred from entering the USA, US citizens would be barred from entering Iran; as soon as the US lifts the ban, as it was forced to do at the end of February, Iran would respond in kind".
Russian Foreign Minister Sergei Lavrov said on Thursday that the USA imposition of unilateral sanctions on Iran was 'illegitimate and undermines the collective nature of global efforts'.
It was mainly a procedural move, but it was significant since reimposing nuclear-related sanctions could lead Iran to end its compliance with the deal and revert back to rapid uranium enrichment - something it's threatened to do if the United States reneges.
Criticism by the Trump administration of the 2015 nuclear deal has focused heavily on Tehran's continuing missile program.