Chancellor Angela Merkel said Friday there was little choice but to consider fresh sanctions against Iran as Germany's two biggest insurers announced they were pulling out of the Islamic republic.

"Our hand is still stretched out ... but the continued defiance towards the IAEA, to UN resolutions and Iran's dangerous policies in general oblige the international community to take the path in New York towards further sanctions against the regime in Tehran," Merkel's spokesman said.

"The German government is rigorously taking part in this process."

The comments followed the leak on Thursday of a report from the International Atomic Energy Agency, the UN atomic watchdog, expressing concern that Iran might have been trying to develop a nuclear warhead.

Merkel's spokesman said the report confirmed Germany's "great concerns."

US President Barack Obama's spokesman said Thursday it continued "to demonstrate the failure of the Iranian government to live up to its international obligations."

Iran's supreme leader Ayatollah Ali Khamenei said on Friday that Iran did not believe in and was not seeking an atomic weapon, state television reported, calling Western allegations "nonsensical."

Tehran insists its nuclear activities are for peaceful purposes.

Foreign Minister Guido Westerwelle meanwhile echoed comments from US Vice President Joe Biden that he was confident China, seen as the least keen on new sanctions among permanent UN Security Council members, would come on board.

"I have the firm impression that China sees the prospect of Iran having nuclear weapons as unacceptable," Westerwelle said on Friday.

Germany's top two insurers meanwhile, Munich Re and Allianz, on Friday became the latest German firms to announce they pulling out of Iran, both citing what they called the "political situation" there.

For Munich Re, a firm generating close to 40 billion euros (54 billion dollars) in premiums each year, the loss of an estimated 10 million euros is small, and an Allianz spokeswoman told AFP that the amount of business it did in Iran was negligible.

But the moves, which followed a similar announcement by German engineering giant Siemens last month, have a high symbolic importance since Germany's partners have been pressuring it to put its money where its mouth is and cut its still sizeable business ties with Iran.

Germany, the world's second biggest exporter after China, sold almost four billion euros worth of goods to Iran in 2008, mainly machine tools and industrial equipment, a rise of nearly nine percent.

In the 11 months to November 2009, the latest figures available, exports fell nine percent, a spokesman told AFP last month, but this was less than the 19-percent recession-fuelled slump that Germany recorded overall.

Merkel said in January that German-Iranian trade had "declined considerably" while acknowledging that the two countries had a "long tradition of economic cooperation."

At the same time Germany is one of six countries negotiating with Tehran over its nuclear programme, along with permanent UN Security Council members the United States, China, Russia, Britain and France.

Berlin has already reduced to a trickle the special export guarantees crucial to companies trading with Iran.

In addition, according to press reports, the German government is applying pressure on chambers of commerce not to organise seminars on Iran or business trips there.

Hannover Re, another German reinsurer, said Friday it still conducted a "small amount" of business in Iran, but "only if and to the extent it complies strictly with the implemented sanctions by the UN and the European Union."